UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______to_____
Commission file number 0-18083
Williams Controls, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
14100 SW 72nd Avenue
Portland, Oregon 97224
--------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.01 par value)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No
--- ---
(2) Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of November 30, 1999, 19,783,528, shares of Common Stock were outstanding and
the aggregate market value of the shares (based upon the closing price of the
shares on the NASDAQ National market) of Williams Controls, Inc. held by
nonaffiliates was approximately $26,956,328.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the 1999 Annual Meeting of
Stockholders to be filed not later than January 28, 2000 are incorporated by
reference in Part III hereof.
<PAGE>
Williams Controls, Inc.
Index to 1999 Form 10-K
Page
Part I ----
Item 1. Description of Business 2-7
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-17
Item 8. Financial Statements and Supplementary Data 18-53
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 54
Part III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners and
Management 54
Item 13. Certain Relationships and Related Transactions 54
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 54
Signatures 55
<PAGE>
WILLIAMS CONTROLS, INC.
Form 10-K
Part I
Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
acquires, and disposition of any current business of the Company, including its
Agriculture Equipment business unit. These forward-looking statements are
subject to the business and economic risks faced by the Company. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of the factors described above and other
factors described elsewhere in this report.
Item 1. Description of Business (Dollars in thousands)
- -------------------------------
Williams Controls, Inc., including its wholly-owned subsidiaries, Williams
Controls Industries, Inc. ("Williams"); Aptek Williams, Inc. ("Aptek"); Premier
Plastic Technologies, Inc. ("PPT"); ProActive Acquisition Corporation
("ProActive"); Williams Automotive, Inc.; GeoFocus, Inc. ("GeoFocus"); NESC
Williams, Inc. ("NESC"); Williams Technologies, Inc. ("Technologies"); Williams
World Trade, Inc. ("WWT"); Kenco/Williams, Inc. ("Kenco"); Techwood Williams,
Inc. ("TWI"); Agrotec Williams, Inc. ("Agrotec") and its 80% owned subsidiaries
Hardee Williams, Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw")
is hereinafter referred to "we" "our" or
"us."
General
- -------
We are a Delaware corporation formed in 1988. The principal company in our
vehicle component segment, our primary business segment, was founded by Norman
C. Williams in 1939 and acquired by the Company in 1988. Our operating
subsidiaries are divided into three business units (one of which is reported as
a discontinued operation).
Vehicle Components - Our vehicle component product lines primarily include
electronic throttle control systems, exhaust brakes and pneumatic, hydraulic
controls and plastic injection molded products including automotive taillight
systems. These products are used in trucks, utility and off-highway equipment,
transit buses and underground mining machines. We estimate that we have over a
65% market share of electronic throttle control systems for Class 7 and 8
trucks. The majority of these products are sold directly to original equipment
manufacturers such as Freightliner, Navistar, Volvo, Isuzu and Motor Coach
Industries. We also sell these products through a well-established network of
independent distributors. The major competitors in one or more of our product
lines include Morris Controls, Furon, Teleflex, Dura Automotive-Hella and KSR,
Inc. Markets for electronic throttle control systems are developing in smaller
classes of trucks, diesel-powered pick-up trucks and automobiles. The major car
manufacturers are converting gasoline-powered automobiles and pick-up trucks to
the electronic throttle control system, although this requires engine redesign
by the automotive manufacturers which is presently ongoing. In addition, the
passenger vehicles market began the introduction of adjustable foot pedal
systems during 1999. We purchased an adjustable foot pedal designer and
manufacturer in July 1999.
Electrical Components and Global Positioning System - Our electrical components
product line includes the design and production of microcircuits, cable
assemblies, position tilt sensors and other electronic products used in the
telecommunication, computer and transportation industries. Major customers
include Allied Signal, Raychem and Eaton Corp. Major competitors include CTS,
Robertshaw Spectrol, AMP and Nethode. The global positioning system product line
includes commuter railroad train tracking and agricultural cyber-farming using
global positioning and geographic information systems. Our major customers
include Chicago Metra, Tri-Rail, the Florida Department of Transportation and
Via Tropical Fruit.
2
<PAGE>
Agricultural Equipment - Our agricultural equipment product lines include rotary
cutters, discs, harrows and sprayers. These products are sold to independent
equipment dealers located primarily in the Southeastern United States. Our major
competitors include Allied Industries (Bushhog), Wood Brothers, Taylor
Industries, Inc. and Alamo Group. This business is reported as a discontinued
operation.
These are our operating subsidiaries, all of which are 100% owned, and a brief
description of each operating subsidiary's business (the subsidiaries that are
reported as discontinued operations or are no longer operating are not listed).
Vehicle Components
- ------------------
Williams Controls Industries, Inc.: Manufactures vehicle components sold
primarily in the transportation industry.
ProActive Acquisition Corporation.: Conducts research and development activities
related to adjustable foot pedals and manufactures adjustable pedal systems.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry.
NESC Williams, Inc.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
Williams Automotive, Inc.: Markets our products to the automotive industry.
Williams Technologies, Inc.: Supports all subsidiaries of our company by
providing research and development and developing strategic business
relationships to promote "technology partnering."
Williams World Trade, Inc.: Manages foreign sourcing for all of our
subsidiaries, affiliates and third party customers through its wholly owned
subsidiary located in Kuala Lumpur, Malaysia.
Electronic Components and Global Positioning System
- ---------------------------------------------------
Aptek Williams, Inc.: Develops and produces sensors, microcircuits, cable
assemblies and other electronic products for the telecommunications and the
transportation industry, and conducts research and development activities to
develop commercial applications of sensor related products for the subsidiaries
of the Company.
GeoFocus, Inc.: Develops train tracking and cyber-farming systems using global
positioning systems and geographical information systems.
Acquisitions and Dispositions
- -----------------------------
From fiscal 1994 through fiscal 1996, we pursued an acquisition strategy to
integrate vertically through the acquisition of a sensor manufacturing company
and horizontally through the acquisition of companies in similar industries that
could benefit from our sensor and control experience. During this period, we
acquired several companies with products that could benefit from sensor and
control applications.
In fiscal 1997, we changed our diversification acquisition strategy to focus our
corporate and financial resources on opportunities emerging in our vehicle
components business unit and global positioning system train tracking markets.
We may not be able to capitalize on opportunities emerging in vehicle components
or global positioning system train tracking markets and/or the development of
commercial applications of sensor related products. In addition, if we are
successful in one or more endeavors, we cannot be certain that those endeavors
will be profitable.
3
<PAGE>
In March 1998, we completed the sale of our subsidiary comprising the automotive
accessories business unit. On December 14, 1998, we announced our intention to
sell the agricultural equipment business unit, and we retained an investment
banking firm to advise us on the sale and solicit potential purchasers for the
business unit. In June 1998, we restructured our investment in Ajay Sports, Inc.
to provide for a repayment of all loans and an increase in the dividend rate on
our preferred stock investment on June 30, 2001. In July 1999, we purchased the
ProActive pedals division of Active Tools Manufacturing, Co., Inc. ProActive
Pedals is a designer and develop of adjustable foot pedal system and modular
pedal systems.
Competition
- -----------
In general, our products are sold in highly competitive markets to customers who
are sophisticated and demanding concerning price, performance and quality.
Products are sold in competition with other independent suppliers (some of which
have substantial financial resources and significant technological
capabilities), and many of these products are, or could be, produced by the
manufacturers to which we sell these products. Our competitive position varies
among our product lines.
In the vehicle components segment, we are the largest domestic producer of ETCs
sold in the heavy truck ETC market. We have only one primary competitor in the
diesel heavy truck market. We also manufacture pneumatic and air control systems
for the heavy truck market, which is comprised of numerous highly fragmented
competitors. We believe the principal method of competition for ETC in the
trucking industry is quality and engineering added value and reputation. In
addition, attainment of the ISO 9001 and QS 9000 quality certifications is
critical to qualifying as a supplier to the automotive industry and certain
manufacturers in the truck industry. Three of our manufacturing facilities in
our vehicle components segment have attained these certifications.
During fiscal 1999, we began the introduction of our electronic throttle control
systems product into the passenger vehicle market which consists of cars, small
trucks, mini vans and sport utility vehicles. Although our electronic throttle
control systems product has been successful in the domestic heavy duty truck
market, we cannot be sure that it will be fully accepted in these new markets.
Introduction of electronic throttle control in gasoline engines will require
modification or redesign of engine components that will be dependent upon the
timing of development by the automotive manufacturers and their original
equipment manufacturers. However, based on initial acceptance, we expect that a
substantial number of passenger vehicles will convert to electronic throttle
controls over the next five years. Our primary competitors in the United States
are Teleflex, Dura Automotive-Hella and KSR, Inc. Each of these companies is
substantially larger and has greater financial resources than us. Furthermore,
we have no control over the timing of the introduction of the electronic
throttle control into the automotive, small truck and sport utility vehicle
markets.
We purchased substantially all of the assets and assumed certain liabilities of
ProActive Pedals in July 1999. ProActive owns patent rights and designs for
adjustable foot pedal systems and currently produces the adjustable foot pedal
for the Dodge Viper. We currently compete against Teleflex and KSR, Inc. in the
adjustable foot pedal market, and we expect Dura Automotive-Hella to enter the
market with adjustable foot pedal designs. Thus, we will be competing against
much larger competitors in these markets with financial resources much greater
than ours and with existing long-term supplier relationships with the automotive
industry.
4
<PAGE>
Marketing and Distribution
- --------------------------
We sell our products to customers in the truck, automotive, heavy equipment,
telecommunication and other diversified industries worldwide; approximately 95%
of its sales from continuing operations are to customers in the vehicle
component segment and 63% of its sales from continuing operations are from sales
of ETC products. For the years ended September 30, 1999, 1998 and 1997,
Freightliner accounted for 27%, 21% and 16%, Navistar accounted for 15%, 16%,
and 16%, Volvo accounted for 8%, 9%, and 8% and General Motors accounted for 5%,
3% and 0% of net sales from continuing operations, respectively. Approximately
20%, 15% and 14% of net sales from continuing operations in fiscal 1999, 1998
and 1997, respectively, were to customers outside of the United States,
primarily in Canada, Mexico and Sweden, and, to a lesser extent, in Europe,
South America and Australia. See note 15 of Notes to Consolidated Financial
Statements.
The Company performs ongoing credit evaluations of its customers' financial
condition and maintains allowances for potential credit losses. Actual losses
and allowances have been within management's expectations.
Existing Future Sales Orders
- ----------------------------
Future sales orders for our products were approximately $17,625 at September 30,
1999, compared to approximately $16,100 at September 30, 1998. These are orders
for which customers have requested delivery at specified future dates within one
year. We have not experienced significant problems delivering products on a
timely basis.
Environment
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Our operations result in the production of small quantities of materials
identified by the Environmental Protection Agency of the United States
Government as "hazardous waste substances" which must be disposed of in
accordance with applicable local, state and federal guidelines. Substantial
liability may result to a company for failure, on the part of itself or its
contractors, to dispose of hazardous wastes in accordance with the established
guidelines, including potential liability for the clean up of sites affected by
improper disposals. We use our best efforts to ensure that any hazardous
substances are disposed of in an environmentally sound manner and in accordance
with these guidelines.
We have identified certain contaminants in the soil of our Portland, Oregon
manufacturing facility, which we believe was disposed on the property by a
previous property owner. We intend to seek indemnification from such party for
the costs of permanent monitoring, or cleanup if required. We have retained an
environmental consulting firm that has conducted tests to determine the extent
of any contamination. Based on the results of the tests and current regulations,
the contamination is not a reportable event. We believe that we can enforce
available claims against the prior property owner for any costs of monitoring or
cleanup. We believe we are currently in compliance with environmental
regulations.
Government Regulation
- ---------------------
Our vehicle component products must comply with the National Traffic and Motor
Vehicle Safety Act of 1966, as amended, and regulations promulgated thereunder
which are administered by the National Highway Traffic Safety Administration
("NHTSA"). If, after an investigation, NHTSA finds that we are not in compliance
with any of it's standards or regulations, among other things, it may require
that we recall our products, which are found not to be in compliance, and repair
or replace such products. We believe we are currently in compliance with NHTSA.
5
<PAGE>
Product Research and Development
- --------------------------------
Our operating facilities engage in engineering, research and development and
quality control activities to improve the performance, reliability and
cost-effectiveness of our product lines. Our engineering staff works closely
with our customers in the design and development of new products and adapting
products for new applications. During 1999, 1998 and 1997, the Company spent
$3,424, $2,778, and $1,832 respectively, on these activities for continuing
operations. We intend to increase our research and development expenditures in
fiscal 2000 to design ETC products compatible with gasoline powered vehicles,
develop commercial applications for inertia, tilt and position sensor products,
and the development of adjustable foot pedal and ETC systems for automotive,
sport utility vehicles, light trucks and heavy trucks, and further development
of train tracking products. The Company is in the early stages of development of
these programs and expects to increase research and development spending by
approximately $3,000 in fiscal 2000. The majority of the additional expense will
be spent on developing passenger vehicle ETC and adjustable foot pedals.
Patents and Trademarks
- ----------------------
Our product lines generally have strong name recognition in the markets in which
they serve. We have a number of product patents over a period of years, which
expire at various times. We consider each patent to be of value and aggressively
protect our rights against infringement throughout the world. We own two patents
(expiring in 2009) which we believe improves the marketability of the electronic
product line of the heavy vehicle components segment. We do not consider that
the loss or expiration of either patent would materially adversely affect us;
however, competition in the electronic product line could increase without these
patents. We have entered into a royalty bearing patent license agreement with a
private inventor, under which we hold an exclusive, worldwide license for three
patents covering adjustable foot pedals. The license agreement remains in effect
for the life of the patents and requires yearly minimum payments to the
inventor. We believe these licensed patents play a significant role in
establishing our proprietary position in the adjustable foot pedal market, and
the termination of the license or the loss of any of the licensed patents could
materially adversely affect our ability to market adjustable foot pedals. We own
numerous trademarks, enabling us to market our products worldwide. These
trademarks include "Williams" and "Aptek". We believe that in the aggregate, the
rights under our patents and trademarks are generally important to our
operations, but do not consider that any patent or trademark or group of them
related to a specific process or product is of material importance in relation
to our total business except as described above.
Raw Materials; Reliance on Single Source Suppliers
- --------------------------------------------------
We produce our products from raw materials, including brass, aluminum, steel,
plastic, rubber and zinc, which currently are widely available at reasonable
terms. We rely upon, and expect to continue to rely upon CTS Corporation and
Caterpillar, Inc. as single source suppliers for critical components and/or
products as these suppliers are currently the only manufacturers of sensors made
specifically for the Company's ETC system. We manufacture a foot pedal using a
contact position sensor manufactured by Caterpillar, Inc. used exclusively on
Caterpillar engines. Caterpillar supplies this sensor and requires that its
sensor be used on all Caterpillar engines; therefore, the Company does not
consider the Caterpillar sensor supply to be at risk. Although these suppliers
have been able to meet our needs on a timely basis, and appear to be willing to
continue being suppliers there is no assurance that a disruption in a supplier's
business, such as a strike, would not disrupt the supply of a component.
Product Warranty
- ----------------
We warrant our products to the first retail purchaser and subsequent owners
against malfunctions occurring during the warranty period resulting from defects
in material or workmanship, subject to specified limitations. The warranty on
vehicle components is limited to a specified time period, mileage or hours of
use, and varies by product and application. We have established a warranty
reserve based upon our estimate of the future cost of warranty and related
service costs. We regularly monitor our warranty reserve for adequacy in
response to historical experience and other factors.
6
<PAGE>
Employees
- ---------
We employ approximately 514 employees, including 140 union employees. Our
non-union employees are engaged in sales and marketing, accounting and
administration, product research and development, production and quality
control. Our union employees are engaged in manufacturing vehicle components in
the Portland, Oregon facility and are represented by the International Union,
United Automobile Workers of America and Amalgamated Local 492 (the "Union"). We
have a collective bargaining agreement with the Union that expires in September
2002, which provides for wages and benefits (including pension, death,
disability, health care, unemployment, vacation and other benefits) and contains
provisions governing other terms of employment, such as seniority, grievances,
arbitration and Union recognition. Our management believes that our relationship
with our employees and the Union are good. We could experience a change in
non-union labor costs as a result of changes in local economies and general wage
increases.
Item 2. Properties
- ------------------
(Dollars in thousands)
The following table outlines the principal manufacturing and other facilities
owned by us, subject to mortgages on all facilities except Williams and Agrotec.
Entity Facility Location Type and Size of Facility
- ------ ----------------- -------------------------
Williams Portland, Oregon Manufacturing and offices
160,000 square feet
Aptek Deerfield Beach, Florida Manufacturing and offices
48,000 square feet
Hardee Loris, South Carolina Manufacturing and offices
101,000 square feet
Agrotec Pendleton, North Carolina Manufacturing and office
43,000 square feet
Our manufacturing facilities are equipped with the machinery and equipment
necessary to manufacture and assemble its products. Management believes that the
facilities have been maintained adequately, and that we could increase our
production output significantly at any of our facilities with additional
equipment and work force. The Hardee and Agrotec properties are classified as
assets held for disposition.
Facilities that are encumbered by mortgages at September 30, 1999 are as
follows: Hardee, $570 and Aptek $2,381. A bank holds a deed of trust on the
Williams facility.
7
<PAGE>
Item 3. Legal Proceedings
- -------------------------
Williams Controls, Inc. and its consolidated subsidiaries are parties to various
pending judicial and administrative proceedings arising in the ordinary course
of business. Our management and legal counsel have reviewed the probable outcome
of these proceedings, the costs and expenses reasonably expected to be incurred,
the availability and limits of our insurance coverage, and our established
reserves for uninsured liabilities. While the outcome of the pending proceedings
cannot be predicted with certainty, based on our review, management believes
that any liabilities that may result are not reasonably likely to have a
material effect on the Company's liquidity, financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
We did not submit any matters to a vote of its security holders during the
fourth quarter of the year ended September 30, 1999.
8
<PAGE>
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
Our common stock is traded on the over-the-counter market of the National
Association of Securities Dealers Automated Quotation ("NASDAQ") National Market
System under the symbol "WMCO."
The range of high and low bid closing quotations for our common stock for each
fiscal quarter for the past two fiscal years is as follows:
1999
----------------
Quarter High Low
------- ----- -----
October 1 - December 31 $2.50 $2.00
January 1 - March 31 3.00 2.19
April 1 - June 30 3.25 2.19
July 1 - September 30 3.13 2.47
1998
----------------
Quarter High Low
------- ----- -----
October 1 - December 31 $2.50 $1.94
January 1 - March 31 2.78 2.22
April 1 - June 30 3.34 2.59
July 1 - September 30 2.94 2.03
There were 488 record holders of our common stock as of November 30, 1999. We
have never paid a dividend with respect to our common stock and have no plans to
pay a dividend in the foreseeable future.
9
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Item 6. Selected Financial Data
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(Dollars in thousands - except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Year ended September 30, 1999* 1998 1997 1996** 1995***
------------------------ ----- ---- ---- ------ -------
Net sales from continuing operations $ 61,422 $ 57,646 $ 46,671 $ 40,253 $ 37,968
Earnings (loss) from continuing operations (3,928) 4,611 2,515 2,975 4,812
Net earnings (loss) (9,539) 312 (2,037) (561) 4,512
Earnings (loss) from continuing operations
per common share - basic (0.24) 0.24 0.14 0.18 0.28
Earnings (loss) from continuing operations
per common share - diluted (0.24) 0.23 0.14 0.17 0.27
Net earnings (loss) per common share - basic (0.54) 0.00 (0.12) (0.03) 0.27
Net earnings (loss) per common share - diluted (0.54) 0.00 (0.12) (0.03) 0.26
Cash dividends per common share - - - - -
Balance Sheet Data:
September 30, 1999* 1998 1997 1996** 1995***
------------------------ ----- ---- ---- ------ -------
Current assets $ 28,023 $ 31,716 $ 25,156 $ 30,926 $ 25,788
Current liabilities 18,865 12,767 9,028 29,600 7,881
Working capital 9,158 18,949 16,128 1,326 17,907
Total assets 64,504 68,565 48,313 53,049 47,182
Long-term liabilities 27,423 31,387 22,450 4,726 20,244
Minority interest in consolidated subsidiaries - - - 713 764
Shareholder' equity 18,206 24,411 16,835 18,010 18,293
</TABLE>
Note: Except for the balance sheet amounts for 1996 and 1995, the above amounts
reflect the Automotive Accessories and Agricultural Equipment segments as
discontinued operations. See Note 14 to the Notes to the Consolidated Financial
Statements.
*1999 data includes an acquisition made in July. Net sales, loss from operations
(including expense of $1,750 for acquired in-process research and development),
and total assets related to this acquisition were $55, $(2,066) and $6,320,
respectively. The 1999 loss from continuing operations includes a loss from
impairment of assets of $5,278. See Notes 10 and 18 to the Notes to Consolidated
Financial Statements for information on the acquisition and the impairment loss.
**1996 data includes acquisitions made in April and July 1996. Net sales, loss
from operations and total assets related to these acquisitions were $2,782,
$(46) and $2,869, respectively.
***1995 data includes an acquisition made in April. Net sales, income from
operations and total assets related to this acquisition were $2,863, $182 and
$7,544, respectively.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
(Dollars in thousands - except per share amounts)
See "Cautionary Statement" contained at the beginning of this report.
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
- ------------------------------------------------------
Our principal sources of liquidity are funds generated from operations,
borrowings under our credit facilities, and capital leases for equipment
purchases from various leasing companies. Primarily as a result of the
acquisition of ProActive Pedals in July 1999 (see Note 18 to the Notes to the
Consolidated Financial Statements), we have a bridge loan outstanding from our
bank at September 30, 1999. This loan, Term Loan III, is due in February 2000.
We plan to initiate the process of refinancing this borrowing by raising capital
or debt in a private placement, which we expect to complete in February 2000.
Should we not be successful in refinancing this borrowing, we would request an
extension on the due date of Term Loan III from the bank. We anticipate that
cash generated from operations, bank borrowings and capital leases will be
sufficient to satisfy our other working capital and capital expenditure
requirements for current operations for the next twelve months. At September 30,
1999, the Company's working capital decreased to $9,158 compared to $18,949 at
September 30, 1998, and the current ratio was 1.49 at September 30, 1999
compared to 2.48 at September 30, 1998. The decrease in working capital is
attributable primarily to the writedown of asset values related to an increase
in the estimated loss on disposal for the Agriculture Equipment segment, the
$2,500 short term bridge loan for the acquisition of ProActive, and increased
accounts payable at September 30, 1999, partly due to significant capital
expenditures made during the fourth quarter.
Cash increased $1,042 at September 30, 1999 compared to September 30, 1998 as a
result of a large payment from a customer received on September 30. Net deferred
income tax assets increased $4,692, from $2,204 at September 30, 1998 to $6,896
at September 30, 1999, primarily due to an increase in the estimated loss on
disposal of the Agricultural Equipment segment and the loss from impairment of
assets of the Automotive Accessories segment. At September 30, 1999 property,
plant and equipment increased $762 to $20,775, compared to $20,013 at September
30, 1998 due primarily to capital equipment purchases for machinery and
equipment, offset somewhat by the sale of a building and land which were being
leased by a third party and an increase in accumulated depreciation. At
September 30, 1999, long-term debt and capital leases decreased $667 to $29,936,
compared to $30,603 at September 30, 1998. Repayments of long term debt and
capital leases totaling $3,395 and a reduction of capital lease obligations from
termination of the sale/leaseback transaction (see discussion below) offset term
loan borrowings totaling $5,000 and increased capital leases totaling $1,819. At
September 30, 1999, shareholders' equity decreased $6,205 to $18,206, compared
to $24,411 at September 30, 1998 due primarily to a net loss of $9,539 for
fiscal 1999, partially offset by net proceeds from a private placement of common
stock totaling $3,379 completed during fiscal 1999.
Cash flows from continuing operations were $7,664 for the year ended September
30, 1999 compared to $2,083 for the year ended September 30, 1998. During the
year ended September 30, 1999, decreased earnings of $9,851 and an increase in
deferred income taxes from continuing operations of $2,565 were offset by a
charge for acquired in-process research and development of $1,750, and a loss
from impairment of assets of the Automotive Accessories segment totaling $5,278.
The Company's discontinued operations used cash of $1,998 and $3,700 for the
years ended September 30, 1999 and 1998, respectively.
In August, 1999, $500 was paid to a previous lender, on behalf of Ajay, under
the terms of an intercreditor agreement. In July, 1999, a building and land were
sold with net proceeds of $1,192. The impairment loss of $5,278 includes $528
related to this disposal. During fiscal 1999, $575 of advances were made under a
note to Kenco Products, Inc. ("KPI"). The impairment loss of $5,278 includes
amounts advanced to KPI under the note.
In April 1997 we sold the Portland, Oregon manufacturing facility in a
sale/leaseback transaction for $4,600. The transaction was accounted for as a
financing and the capitalized lease obligations of $4,600 were recorded as
long-term liabilities. In April 1998, under the terms of the agreement, we
provided a mortgage note to the purchaser in the amount of $3,200, which was
reported as a note receivable at September 30, 1998. In December 1998, we
exercised a repurchase option on the property and repurchased the building for
$4,700 consisting of cash of $1,500 and the note receivable of $3,200.
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<PAGE>
Accordingly, the note receivable of $3,200 and the capital lease obligation of
$4,600 have been eliminated from the balance sheet at September 30, 1999. The
costs associated with the building repurchase are reported in other expenses
during the year ended September 30, 1999.
In July, 1999 we consummated the private placement of common stock with net
proceeds of $3,379. In addition, during July, we borrowed $2,500 from our bank
under an additional term loan. Proceeds from the common stock offering and the
term loan were used to purchase the net assets of ProActive Pedals, a division
of Active Tool and Manufacturing. The purchase price of ProActive Pedals was
$5,750, plus assumption of approximately $286 in liabilities. In addition, the
Company entered into a patent license agreement with the patent holder, which
required an initial payment of $600 and minimum annual royalty payments of $95
per year for ten years. The primary assets acquired include tooling designs;
technology and patent rights on adjustable foot pedal systems, as well as
modular foot pedal systems. The additional bank financing was borrowed under an
amendment to the Company's existing financing facility as Term Loan III. The
principal amount as Term Loan III is payable in three equal monthly installments
of $139 (plus interest) beginning in November 1999 with the remaining balance of
$2,083 due in February 2000. Interest on Term Loan III is computed at the prime
rate plus 1.25%. (9.5% at September 30, 1999).
In December, 1998 we borrowed $2,500 from our bank under amended term loans to
finance the repurchase of the Portland, Oregon manufacturing facility and for
working capital purposes. Approximately $1,222 of the additional financing was
borrowed under an amendment to our existing Term Loan I, the increased principal
amount of which is payable in equal monthly installments of $60 with the
remaining balance of the entire Term Loan I of $3,150 due at maturity on July
11, 2001. Approximately $1,278 of the additional financing was provided under an
amended Term Loan II which is payable in 18 equal installments of $71, plus
variable interest (8.5% at June 30, 1999).
During the three fiscal years ended September 30, 1999, our Agriculture
Equipment segment has reported net losses from operations totaling $2,651 and
reported a total net loss on disposal of $7,014. In addition, during this same
period, our Automotive Accessories segment reported net losses from operations
totaling $1,207 and reported a total net loss on disposal of $3,590. During this
same three year period ended September 30, 1999, proceeds of $1,124 were
received for the sale of the Automotive Accessories segment and $4,273 of cash
was used for these two discontinued operations. We anticipate the Agricultural
Equipment segment will use cash during the 2000 fiscal year, until it is
disposed of.
The Company had $187 available under its revolving credit facility with a bank
at September 30, 1999. At September 30, 1999, the bank waived compliance with
all financial covenants as the Company was out of compliance at September 30,
1999 with its covenants under its borrowing arrangement. The waivers were
obtained in a manner that allows the Company's debt to be classified as current
and long-term based on the payment terms of the loans at September 30, 1999.
Market Risk - The Company has not entered into derivative financial instruments.
The Company may be exposed to future interest rate changes on its debt. The
Company does not believe that a hypothetical 10 percent change in end of period
interest rates would have a material effect on the Company's cash flow.
In June, 1999 the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
137"). SFAS 137 is an amendment to SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS 137 establishes accounting and
reporting standards for all derivative instruments. SFAS 137 is effective for
fiscal years beginning after June 15, 2000. The Company does not have any
derivative instruments and accordingly, the adoption of SFAS 137 will have no
impact on the Company's financial position or results of operations.
Year 2000 Conversion - The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software failures. Software failures
due to processing errors potentially arising from calculations using the Year
2000 date are a known risk. The Company has addressed the risk to the
availability and integrity of financial systems and the reliability of the
operational systems. The Company has established processes for evaluating and
managing the risks and costs associated with this problem, including
communicating with suppliers, dealers and others with which it does business to
coordinate Year 2000 conversion. During 1998, the Company began implementing the
installation of new financial software that is Year 2000 compliant for the
purpose of improving operations and service to its existing and prospective
truck and automotive customers. This task has been completed in 1999. The
decision to upgrade the Company's software was made irrespective of Year 2000
compliance issues.
12
<PAGE>
Since January, 1998, the Company has been engaged in achieving Year 2000
compliance. The Company's Year 2000 project is divided into several phases and
corrective actions for major systems are complete. All hardware, software,
services and business relationships with trading partners that could be affected
by Year 2000 issues were tested for Year 2000 compliance.
The Company relies on computer systems and software to operate its business,
including applications used in sales, purchasing, inventory management, finance
and various administrative functions. The Company had determined that certain of
its software applications would be unable to interpret appropriately the
calendar Year 2000 and subsequent years. As of December 15, 1999, 100% of the
Company's mission critical systems that may have a material Year 2000 liability
are Year 2000 compliant.
The Company's amended budget for its Year 2000 project is $310, all of which had
been spent through December 1999. The Company acquires a majority of its
inventory from approximately 20% of its vendors. If these vendors have
unresolved Year 2000 issues that affect their ability to supply merchandise, the
Company could be adversely affected. The Company conducted an assessment of
vendors whose potential Year 2000 liability could materially affect operations.
Based on this assessment the Company believes that it is not materially at risk
from a Year 2000 liability posed by its vendors. In the event a vendor's ability
to supply the Company is adversely affected by Year 2000 issues, the Company
believes that it will be able to find alternative suppliers.
Should there be a mission critical system, not previously identified as such,
that becomes a Year 2000 liability or should a vendor unexpectedly experience
Year 2000 issues which adversely affect its ability to supply merchandise, the
Company's business, financial condition and results of operations could be
adversely affected. However, the Company believes that the financial impact
would not be material since all systems believed by the Company to be critical
are Year 2000 compliant and the Company believes it is not materially at risk
from a negative impact as a result of a Year 2000 liability caused by a vendor.
Risks - Despite the Company's efforts to identify all internal systems with Year
2000 issues, it is likely that unexpected problems will arise. As with most
businesses, the Company will also be at risk from external infrastructure
failures that could arise from Year 2000 failures. It is possible, for example,
that electrical power, telephone and financial networks across the nation will
experience breakdowns in the days and weeks following January 1, 2000. There is
also a real possibility of failures of key components in the national
transportation infrastructure or delays in rail, over-the-road and air shipments
due to failures in transportation control systems due to the Year 2000 problem.
Investigation and assessment of risks associated with such ubiquitous and
interconnected utility systems and transportation systems are beyond the
resources of the Company. The failure by the Company or third parties to correct
a material Year 2000 problem could result in an interruption in, or a failure
of, certain of the Company's normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition.
13
<PAGE>
Results of Operations
Year ended September 30, 1999 compared to the year ended September 30, 1998
- ---------------------------------------------------------------------------
Overview
- --------
Net sales from continuing operations increased 6.6% to $61,422 in fiscal 1999
from $57,646 in fiscal 1998 due to higher unit sales volumes in the Company's
vehicle components segment.
In fiscal 1999, loss from continuing operations was $3,031, compared to earnings
from continuing operations of $8,991 in fiscal 1998. The decrease, totaling
$12,022, was the result of reduced gross margin of $3,398, primarily due to
increased warranty expenses and increased inventory reserves based on events in
the fourth quarter of fiscal 1999. Also in fiscal 1999, we expensed $1,750 for
research and development efforts in process at the date of acquisition of
ProActive and recognized a $5,278 loss from the impairment of assets related to
Kenco, our former Automotive Accessories segment.
Net loss allocable to common shareholders was $10,135 in fiscal 1999 compared to
net income allocable to common shareholders of $42 in the prior fiscal year due
to the factors described above, as well as an increase in the net loss from
discontinued operations based upon events and information that resulted in
management's revised estimates of the net realizable value of the Agricultural
Equipment segment.
Net Sales
- ---------
Sales from continuing operations increased $3,776, or 6.6%, to $61,422 in the
year ended September 30, 1999 from $57,646 in the year ended September 30, 1998
primarily due to higher unit sales volumes in our Vehicle Components segment.
Sales from continuing operations in the Vehicle Components segment increased
$4,065, or 7.5%, to $58,136 in the year ended September 30, 1999 over levels
achieved in the year ended September 30, 1998 due to higher ETC unit sales.
Sales from continuing operations in our Electrical Components and GPS segment
decreased $289, or 8.1%, due to lower unit sales of electrical components.
Gross margin
- ------------
Gross margin from continuing operations decreased $3,398, or 19.4%, to $14,119
(23.0% of sales) compared to $17,517 (30.4% of sales) in the year ended
September 30, 1998. Gross margin decreased $2,091 or 12.9%, in the year ended
September 30, 1999 in the Vehicle Components segment due primarily to increased
losses at the company's plastic injection molding and tooling subsidiary and
increased warranty costs of $781.
Our plastic injection molding and tooling subsidiary, the operating results of
which are included in the Vehicle Components segment, reported an increased loss
from operations in the year ended September 30, 1999 of $3,673. Sales, gross
margin (loss) and operating loss for the year ended September 30, 1999 were
$5,253, ($3,083), and ($4,445), respectively, compared to $4,949, $205 and
($772) in the prior fiscal year. The operation moved to a new facility in the
fourth quarter of fiscal 1998 that has a higher breakeven sales level and plant
capacity than the prior facility. The operation has not achieved breakeven sales
to date and is not expected to achieve breakeven sales until the second quarter
of fiscal 2000, when a new $16,000 contract is scheduled to begin. In addition,
the plastic injection and molding subsidiary has been experiencing operating
problems resulting from inefficient production from defective molds supplied by
customers and operating problems on the manufacturing floor. The Company is
evaluating each of the molds in an effort to reduce the high scrap rate it has
experienced. Also, in response to the issues previously mentioned, in the fourth
quarter of fiscal 1999, the tooling operation was closed down.
Gross margin at the Electrical Components and GPS segment decreased $852 from
$740 for the year ended September 30, 1998 to ($112) for the year ended
September 30, 1999 primarily due to fixed expenses and other charges.
14
<PAGE>
Operating expenses
- ------------------
In conjunction with the acquisition of the ProActive Pedal Division of Active
Tool and Manufacturing Co., Inc. in July, 1999, we expensed $1,750 of the
purchase price as acquired in-process research and development during the year
ended September 30, 1999. Also, during the year ended September 30, 1999, we
recognized a $5,278 loss from the impairment of assets related to Kenco, the
Company's former Automotive Accessories segment. The loss consisted of an
impairment of non-voting preferred stock and notes and accounts receivable
totaling $4,655 and impairment of property totaling $623 (see Note 10 to the
Notes to Consolidated Financial Statements).
Operating expenses before the charge for acquired in-process research and
development and the loss from impairment of assets increased $1,596, or 18.7%,
to $10,122 for the year ended September 30, 1999 compared to $8,526 for the year
ended September 30, 1998 primarily as a result of increased research and
development expenses of $646 and an increase in administration expenses of
$1,018. Research and development expenses were increased to support new product
development for development of the automotive ETC product, for development of
sensor-related products and for existing customers. Operating expenses before
the charge for acquired in-process research and development and loss from
impairment of assets as a percentage of sales, was 16.5% and 14.8% in the year
ended September 30, 1999 and 1998. Operating expenses before the charge for
acquired in-process research and development and loss from the impairment of
assets increased $2,269, or 42.6%, in the year ended September 30, 1999 in the
Vehicle Components segment and decreased $219, or 8.0%, in the Electrical
Components and GPS segment compared to the prior year period.
Selling expenses were reduced $68 for the year ended September 30, 1999 compared
to 1998. Selling and expenses as a percent of sales decreased to 3.3% in the
year ended September 30, 1999 compared to 3.6% in the prior year.
In addition, administration expenses increased $1,018, primarily to support
management information service needs with the recent implementation of new ERP
systems, as well an increased bad debt expense, totaling $225, primarily related
to closing the tooling operation at the plastic injection molding facility, and
increased payroll and related costs totaling $160 to support the sophisticated
machinery and expanded operations at our plastic injection molding and tooling
subsidiary.
Acquired In-Process Research and Development - In connection with its
acquisition of the assets of ProActive Pedals in July, 1999, the Company
recorded a pretax charge of $1,750 for research and development efforts in
process at the date of the acquisition. See Note 18 to the Notes to Consolidated
Financial Statements.
The value assigned to the in-process research and development efforts was
determined by independent appraisal and represents those efforts in process at
the date of acquisition that had not reached the point where technological
feasibility had been established and that had no alternative future uses.
Accounting rules require that these costs be expensed as incurred. At September
30, 1999, the Company believes that acquired in-process research and development
efforts related to the acquisition will result in commercially viable products
during fiscal 2001 at an additional cost of approximately $3,500.
Interest and Other Expenses
- ---------------------------
Interest expense increased $349 to $2,154 in the year ended September 30, 1999
from $1,805 in the year ended September 30, 1998. Interest expense increased
primarily as a result of increased capital lease obligations that are at a
higher average interest rate than bank debt. Allocated interest expense included
in discontinued operations for the year ended September 30, 1999 and 1998 was
$277 and $477, respectively.
Discontinued operations
- -----------------------
The Company reported a net loss from discontinued operations of $5,611 for year
ended September 30, 1999 compared to a net loss of $4,299 for the year ended
September 30, 1998. The Company adopted a plan of disposal for the Agriculture
Equipment segment in late 1998. As a result, a net loss on disposal totaling
$1,403 was recorded for this segment. However, during the year ended September
30, 1999, an additional net loss on disposal totaling $5,611 was recorded for
the disposal of this segment. The loss in fiscal 1999 is based on events and
information, which resulted in management's revised estimate of the net
realizable value of the Agricultural Equipment Segment. The revised estimate is
based on contract negotiations and lower than anticipated bids for portions or
all of the segment.
Net sales from the Agriculture Equipment segment declined $1,275, or 15.0% to
$7,225 in the year ended September 30, 1999 compared to $8,500 in the year ended
September 30, 1998. The decline in sales was due to lower unit sales
attributable primarily to a weak farm economy.
Estimated future losses from discontinued operations for the Automotive
Accessories segment were accrued in fiscal 1997. The Automotive Accessories
segment was sold in March 1998, and the loss was $1,625 net of income tax
benefits of $1,001. The additional loss in fiscal 1998 over that accrued in
fiscal 1997 resulted from the loss on the actual disposition of the Automotive
Accessories segment which was sold in 1998.
Net earnings (loss) allocable to common shareholders
- ----------------------------------------------------
Net earnings (loss) allocable to common shareholders were $10,135 in the year
ended September 30, 1999 compared to $42 in the prior fiscal year due to
decreased earnings from operations, including the charge for acquired in-process
research and development and the loss from impairment of assets as described
above.
The effective income tax rate for continuing operations was (27.5)% and 33.9%
for the year ended September 30, 1999 and 1998.
15
<PAGE>
Results of Operations
Year ended September 30, 1998 Compared to September 30, 1997
- ------------------------------------------------------------
Overview
- --------
Net sales from continuing operations increased 23.5% to $57,646 in fiscal 1998
from $46,671 in fiscal 1997 due to higher unit sales volumes in the Company's
Vehicle Components segment.
Earnings from continuing operations increased $2,599, or 40.7%, to $8,991 in
fiscal 1998 from $6,392 in fiscal 1997. The increase was due to increased
earnings from continuing operations of $3,383 in the Company's Vehicle
Components segment due to higher unit sales, which was offset by lower earnings
from continuing operations of $784 in the electrical components and GPS segment
due to increased operating expenses for research and development and
administration incurred for sensor development. Net earnings from continuing
operations increased 83.3%, or $2,096 in fiscal 1998 primarily as a result of
increased earnings before interest and taxes of $2,220 and a lower effective tax
rate as a result of anticipated and realized state tax refunds from prior years.
Net earnings allocable to common shareholders was $42 in fiscal 1998 compared to
a net loss allocable to common shareholders of $2,037 in the prior fiscal year
due to increased net income from continuing operations offset by losses in the
Company's discontinued Automotive Accessories and Agricultural Equipment
segments.
Net Sales
- ---------
Net sales from continuing operations in the Vehicle Components segment increased
$11,157, or 26.0%, to $54,071 in fiscal 1998 over levels achieved in fiscal 1997
due to higher ETC unit sales volumes in the Class 7 and 8 truck OEM markets. Net
sales from continuing operations in the Company's electrical component and GPS
segments decreased $182, or 4.8%, due to lower unit sales of electrical
components. Sales of Vehicle Components and electrical components accounted for
93.8% and 6.2% as a percent of total sales for the year ended September 30, 1998
compared to 92.0% and 8.0% for the prior year.
Gross margin
- ------------
Gross margin from continuing operations increased $4,820, or 38.0%, to $17,517
compared to $12,697 in fiscal 1997. Gross margins increased 40.6% in fiscal 1998
in the Vehicle Components segment due to higher unit sales volumes of ETC
products and improved margins at the Company's plastic injection molding
facility. Increases in this segment were offset by a decrease in gross margin of
2.9% in the electrical component and GPS segments. Decreased gross margins in
these segments are attributed to lower unit sales volumes. Gross margins as a
percent of sales increased to 30.4% in fiscal 1998 compared to 27.2% in fiscal
1997 primarily as a result of improved operating margins at the Company's
plastic injection molding facility in the Vehicle Components segment.
Operating expenses
- ------------------
Operating expenses for continuing operations increased $2,221, or 35.2%, during
fiscal 1998 compared to amounts in fiscal 1997. Operating expenses as a
percentage of net sales from continuing operations increased to 14.8% in fiscal
1998 compared to 13.5% in fiscal 1997. Operating expenses increased $1,458, or
33.7%, in fiscal 1998 in the Vehicle Components segment and $762, or 38.5%, in
the electronic components and GPS segment compared to 1997 levels. Increases in
operating expenses were attributed to higher research and development expenses
related to new product development and increased selling and administration
costs to support the increased sales levels.
Research and development expenses for continuing operations increased $946, or
51.6%, to $2,778 during fiscal 1998 compared to amounts in fiscal 1997. As a
percentage of net sales from continuing operations, research and development
expenses increased from 3.9% to 4.8%. Research and development expenses were
increased in fiscal 1998 to support new product development for existing
customers, for development of the automotive ETC product and for development of
sensor-related products.
16
<PAGE>
Selling expenses for continuing operations increased 21.6% to $2,065 in fiscal
1998 compared to 1997 levels. Selling expenses as a percentage of net sales from
continuing operations were 3.6% in fiscal 1997 and 1998. Selling expenses
increased to support increased sales volumes in the Vehicle Components segment.
General and administrative expenses for continuing operations increased $908, or
32.7%, in fiscal 1998 to $3,683 compared to fiscal 1997 amounts. General and
administrative expenses were 6.4% and 5.9% of net sales from continuing
operations in fiscal 1998 and 1997, respectively. Increases in dollar amount in
fiscal 1998 were attributed to additional administrative personnel required to
support increased sales volumes.
Interest and Other Expenses
- ---------------------------
Interest expenses increased $434, or 31.7%, to $1,805 in fiscal 1998 from $1,371
in fiscal 1997 due to increased borrowings. Allocated interest expense included
in discontinued operations for the year ended September 30, 1998 and 1997 was
$477 and $723, respectively. Other expenses increased $122, or 31.8% to $506 in
fiscal 1998 from $384 in fiscal 1997 due to increased equity interest in losses
of Ajay.
Discontinued operations
- -----------------------
The Company reported a net loss from discontinued operations of $4,299 in fiscal
1998 compared to a net loss of $4,552 in fiscal 1997. The Company adopted a plan
of disposal for the Automotive Accessories segment in fiscal 1997 and for the
Agriculture Equipment segment in late 1998.
The 1998 loss from discontinued operations of the Agriculture Equipment business
consisted of pre-measurement net losses of $1,271 net of income tax benefits of
$959 and an estimated loss on disposal of $1,403, net of income tax benefits of
$972. The estimated loss on disposal includes an estimated loss during the
phase-out period of $496 net of income tax benefits of $304. The pre-measurement
loss of $1,271 in fiscal 1998 compares to a loss from operations of $1,380 in
fiscal 1997. Net sales from the Agriculture Equipment business declined $1,081,
or 11.3% to $8,500 in fiscal 1998 compared to $9,581 in fiscal 1997. The decline
in sales was due to lower unit sales attributable primarily to a poor farm
economy in 1998.
The 1998 loss from discontinued operations of the Automotive Accessories
business was $1,625 net of income tax benefits of $1,001. The loss resulted
primarily from a reduction in the estimated value of non-voting preferred stock
received as partial consideration for the sale and from additional estimated
retained liabilities related to the sale.
17
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ------------------------------------------------------
Williams Controls, Inc.
Index to Consolidated Financial Statements
Page
----
Consolidated Balance Sheets at September 30, 1999 and 1998 19
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1999, 1998 and 1997 20
Consolidated Statements of Operations for the years
ended September 30, 1999, 1998 and 1997 21
Consolidated Statements of Comprehensive Income (Loss)
for the years ended September 30, 1999, 1998 and 1997 22
Consolidated Statements of Cash Flows for the years
ended September 30, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24-51
Report of Independent Public Accountants 52
Independent Auditors' Report 53
See page 56 for Index to Schedules and page 60 for Index to Exhibits.
18
<PAGE>
Williams Controls, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, September 30,
ASSETS 1999 1998
----------------- -----------------
Current Assets:
Cash and cash equivalents $ 2,323 $ 1,281
Trade and other accounts receivable, less allowance of
$484 and $325 in 1999 and 1998, respectively 11,187 11,765
Inventories 9,828 10,693
Deferred income taxes and other 4,325 2,190
Net assets held for disposition 360 5,787
----------------- -----------------
Total current assets 28,023 31,716
Property plant and equipment, net 20,775 20,013
Investment in and note receivable from affiliate 6,152 6,140
Note receivable - 3,200
Net assets held for disposition 500 3,424
Goodwill and intangible assets, net 5,764 716
Deferred income taxes 3,025 167
Other assets 265 3,189
----------------- -----------------
Total assets $ 64,504 $ 68,565
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities:
Accounts payable $ 9,223 $ 5,127
Accrued expenses 3,449 3,673
Current portion of long-term debt and capital leases 5,193 1,417
Estimated loss on disposal 1,000 2,550
----------------- -----------------
Total current liabilities 18,865 12,767
Long-term debt and capital lease obligations 24,743 29,186
Other liabilities 2,690 2,201
Commitments and contingencies (Note 22)
Shareholders' Equity:
Preferred stock ($.01 par value, 50,000,000 authorized; 78,500 and
80,000 issued and outstanding at September 30, 1999 and 1998,
respectively) 1 1
Common stock ($.01 par value, 50,000,000 authorized; 19,898,728 and
18,311,288 issued and outstanding at September 30, 1999 and 1998,
respectively) 199 183
Additional paid-in capital 21,574 17,917
Retained earnings (Accumulated deficit) (2,691) 7,444
Unearned ESOP shares - (73)
Treasury stock (130,200 shares at September 30, 1999 and 1998) (377) (377)
Note Receivable (500) (500)
Pension liability adjustment - (184)
----------------- -----------------
Total shareholders' equity 18,206 24,411
----------------- -----------------
Total liabilities and shareholders' equity $ 64,504 $ 68,565
================= =================
The accompanying notes are an integral part of these balance sheets.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Williams Controls, Inc.
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
Issued Issued Retained Pension Share-
Preferred Stock Common Stock Additional Earnings Unearned Treasury Note Liability holders'
Shares Amount Shares Amount Paid-in (Accumulated ESOP Stock Receivable Adjustment Equity
Capital Deficit) Shares
-------------------------------------------------------------------------------------------------------------
Balance, September 30,
1996 - $ - 17,869,987 $179 $9,671 $9,439 $(511) $(540) $ - $(228) $ 18,010
Net Loss - - - - - (2,037) - - - - (2,037)
Issuance of contingent
shares for
acquisition - - 42,253 - 106 - - - - - 106
Treasury stock issued
for acquisition
services - - - - - - - 163 - - 163
Reduction of
unallocated ESOP
shares - - - - 45 - 320 - - - 365
Change in pension
liability adjustment - - - - - - - - - 228 228
-------------------------------------------------------------------------------------------------------------
Balance, September 30,
1997 - - 17,912,240 179 9,822 7,402 (191) (377) - - 16,835
Net earnings - - - - - 312 - - - - 312
Issuance of
preferred stock 80,000 1 - - 7,336 - - - - - 7,337
Dividends on
preferred stock - - - - - (270) - - - - (270)
Common stock issued
in satisfaction
of note payable - - 42,329 1 99 - - - - - 100
Issuance of stock
upon exercise of
stock options - - 150,000 1 61 - - - - - 62
Common stock issued
to affiliate for
note receivable - - 206,719 2 498 - - - (500) - -
Reduction of
unallocated ESOP
shares - - - - 7 - 118 - - - 125
Change in pension
liability adjustment - - - - - - - - - (184) (184)
Income tax benefit
of non-qualified
stock option
exercises - - - - 94 - - - - - 94
-------------------------------------------------------------------------------------------------------------
Balance, September
30, 1998 80,000 1 18,311,288 183 17,917 7,444 (73) (377) (500) (184) 24,411
Net loss - - - - - (9,539) - - - - (9,539)
Dividends on preferred
stock - - - - - (596) - - - - (596)
Common stock issued in
private placement - - 1,331,149 13 4,539 - - - - - 4,552
Equity issuance costs - - - - (1,173) - - - - - (1,173)
Issuance of stock upon
exercise of stock
options - - 201,750 2 167 - - - - - 169
Common stock issued
from conversion of
preferred stock (1,500) - 54,541 1 (1) - - - - - -
Change in pension
liability adjustment - - - - - - - - - 184 184
Reduction of unallocated
ESOP shares - - - - 7 - 73 - - - 80
Income tax benefit of
non-qualified stock
option exercise - - - - 118 - - - - - 118
=============================================================================================================
Balance, September
30, 1999 78,500 $ 1 19,898,728 $199 $21,574 $ 2,691 $ - $(377) $ (500) $ - $18,206
=============================================================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
For the year ended September 30,
1999 1998 1997
----------------- --------------- ---------------
Sales $ 61,422 $ 57,646 $ 46,671
Cost of sales 47,303 40,129 33,974
----------------- --------------- ---------------
Gross margin 14,119 17,517 12,697
Operating expenses:
Acquired-in process research and development 1,750 - -
Research and development 3,424 2,778 1,832
Selling 1,997 2,065 1,698
Administration 4,701 3,683 2,775
Loss from impairment of assets 5,278 - -
----------------- --------------- ---------------
Total operating expenses 17,150 8,526 6,305
Earnings (loss) from continuing operations (3,031) 8,991 6,392
Other (income) expenses:
Interest income (343) (297) (120)
Interest expense 2,154 1,805 1,371
Other (income) expense 85 - -
Equity interest in loss of affiliate 488 506 384
----------------- --------------- ---------------
Total other expenses 2,384 2,014 1,635
----------------- --------------- ---------------
Earnings (loss) from continuing operations before income
taxes (5,415) 6,977 4,757
Income tax (benefit) expense (1,487) 2,366 2,242
----------------- --------------- ---------------
Earnings (loss) from continuing operations (3,928) 4,611 2,515
Discontinued operations:
Net loss from operations of the agricultural segment - (1,271) (1,380)
Net loss on disposal of the agricultural segment,
including $638 and $496 for operating losses
during phase-out period, respectively (5,611) (1,403) -
Net loss from operations of automotive accessories - - (1,207)
Net loss on disposal of automotive accessories segment,
including $387 and $1,965 for operating losses
during phase-out period, respectively - (1,625) (1,965)
----------------- --------------- ---------------
Net loss from discontinued operations (5,611) (4,299) (4,552)
----------------- --------------- ---------------
Net earnings (loss) (9,539) 312 (2,037)
Dividends on preferred stock (596) (270) -
----------------- --------------- ---------------
Net earnings (loss) allocable to common shareholders $ (10,135) $ 42 $ (2,037)
================= =============== ===============
Earnings (loss) per common share from continuing
operations - basic $ (0.24) $ 0.24 $ 0.14
----------------- --------------- ---------------
Loss per common share from discontinued operations - basic $ (0.30) $ (0.24) $ (0.26)
----------------- --------------- ---------------
Net earnings (loss) per common share - basic $ (0.54) $ 0.00 $ (0.12)
================= =============== ===============
Weighted average shares used in per share calculation -
basic 18,603,057 17,922,558 17,656,900
================= =============== ===============
Earnings (loss) per common share from continuing operations
- diluted $ (0.24) $ 0.23 $ 0.14
----------------- --------------- ---------------
Loss per common share from discontinued operations - diluted $ (0.30) $ (0.23) $ (0.26)
----------------- --------------- ---------------
Net earnings (loss) per common share - diluted $ (0.54) $ 0.00 $ (0.12)
----------------- --------------- ---------------
Weighted average shares used in per share calculation -
diluted 18,603,057 19,808,460 18,001,799
================= =============== ===============
The accompanying notes are an integral part of these statements.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Williams Controls, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in thousands)
For the year ended September 30,
1999 1998 1997
---------------- ---------------- ------------------
Net earnings (loss) $ (9,539) $ 312 $ (2,037)
Change in pension liability adjustment 184 (184) 228
---------------- ---------------- ------------------
Comprehensive income (loss) $ (9,355) $ 128 $ (1,809)
================ ================ ==================
</TABLE>
22
<PAGE>
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended September 30,
1999 1998 1997
----------- ---------- ----------
Cash flows from operating activities:
Net earnings (loss) $ (9,539) $ 312 $ (2,037)
Adjustments to reconcile net earnings (loss) to net cash
provided by continuing operations:
Loss from discontinued operations 5,611 4,299 4,552
Depreciation and amortization 2,056 1,406 1,071
Equity interest in loss of affiliate 488 506 384
Deferred income taxes (2,565) (96) (1,368)
Acquired in-process research and development 1,750 - -
Loss from impairment of assets 5,278 - -
Changes in working capital of continuing operations, net of
acquisition:
Receivables (141) (3,739) (486)
Inventories 974 (2,213) (105)
Accounts payable and accrued expenses 3,277 722 258
Other 475 886 (136)
----------- ---------- ----------
Net cash provided by operating activities of continuing operations 7,664 2,083 2,133
Cash flows from investing activities:
Investment in and loans to affiliate (500) (2,292) (3,645)
Proceeds from sale of building 1,192 - -
Investment in note receivable (575) (3,200)
Payment for acquisition of ProActive (6,350) - -
Payments for property, plant and equipment (2,948) (2,685) (675)
----------- ---------- ----------
Net cash used in investing activities of continuing operations (9,181) (8,177) (4,320)
Cash flows from financing activities:
Proceeds from long-term debt 5,592 4,201 16,809
Repayments of long-term debt and capital lease obligations (3,987) (2,079) (21,000)
Proceeds from sale/leaseback transaction - - 4,274
Net proceeds from issuance of common stock for private placement and
upon exercise of stock options 3,548 62 -
Preferred dividends (596) (270) -
Issuance of preferred stock - 7,337 -
----------- ---------- ----------
Net cash provided by financing activities of continuing operations 4,557 9,251 83
Cash flows from discontinued operations:
Proceeds from sale of Automotive Accessories business unit - 1,124 -
Net cash provided by (used in) operations (1,998) (3,700) 1,425
----------- ---------- ----------
Net cash provided by (used in) discontinued operations (1,998) (2,576) 1,425
----------- ---------- ----------
Net increase (decrease) in cash and cash 1,042 581 (679)
Cash and cash equivalents at beginning of period 1,281 700 1,379
----------- ---------- ----------
Cash and cash equivalents at end of period $ 2,323 $ 1,281 $ 700
=========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 1,993 $ 2,189 $ 2,275
Income taxes paid, net of refunds $ 503 $ 90 $ (424)
The non-cash activity related to the Company's investing activity is described
in notes 4, and 14 and 19, non-cash activity related to the Company's financing
activity is described in note 6 and non-cash activity related to the Company's
acquisition is described in note 18.
The accompanying notes are an integral part of these statements.
</TABLE>
23
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 1. Summary of Operations
- -----------------------------
Williams Controls, Inc, including its wholly-owned subsidiaries, Williams
Controls Industries, Inc. ("Williams"); Aptek Williams, Inc. ("Aptek"); Premier
Plastic Technologies, Inc. ("PPT"); ProActive Acquisition Corporation
("ProActive"); Williams Automotive, Inc.; GeoFocus, Inc. ("GeoFocus"); NESC
Williams, Inc. ("NESC"); Williams Technologies, Inc. ("Technologies"); Williams
World Trade, Inc. ("WWT"); Kenco/Williams, Inc. ("Kenco"); Techwood Williams,
Inc. ("TWI"); Agrotec Williams, Inc. ("Agrotec") and its 80% owned subsidiaries
Hardee Williams, Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw")
is herein referred to as the "Company" or "Registrant". The subsidiaries are
detailed as follows:
Vehicle Components
- ------------------
Williams Controls Industries, Inc.: Manufactures vehicle components sold
primarily in the transportation industry.
ProActive Acquisition Corporation: Conducts research and development activities
related to adjustable foot pedals and manufactures adjustable pedal systems.
Premier Plastic Technologies, Inc.: Manufactures plastic components for the
automotive industry and manufactures prototype and production molds using rapid
prototyping processes.
NESC Williams, Inc.: Installs conversion kits to allow vehicles to use
compressed natural gas and provides natural gas well metering services.
Williams Automotive, Inc.: Markets the Company's products to the automotive
industry.
Williams Technologies, Inc.: Supports all subsidiaries of the Company by
providing research and development and developing strategic business
relationships to promote "technology partnering."
Williams World Trade, Inc.: Located in Kuala Lumpur, Malaysia, WWT manages
foreign sourcing for subsidiaries of the Company, affiliates and third party
customers. A significant portion of WWT's revenues are derived from Ajay Sports,
Inc., an affiliate.
Electrical Components and GPS
- -----------------------------
Aptek Williams, Inc.: Develops and produces sensors, microcircuits, cable
assemblies and other electronic products for the telecommunications and the
transportation industry, and conducts research and development activities to
develop commercial applications of sensor related products for the subsidiaries
of the Company.
GeoFocus, Inc.: Develops train tracking and cyber-farming systems using global
positioning systems ("GPS") and geographical information systems ("GIS").
Agricultural Equipment
- ----------------------
The subsidiaries comprising the Agricultural Equipment segment are reported as
discontinued operations.
Agrotec Williams, Inc.: Manufactures spraying equipment for the professional
lawn care and nursery and pest control industries.
Hardee Williams, Inc.: Manufactures equipment used in farming, highway and park
maintenance.
Waccamaw Wheel Williams, Inc.: Manufactures solid rubber tail wheels and other
rubber products, used on agricultural equipment, from recycled truck and bus
tires.
24
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Techwood Williams, Inc.: Manufactured and distributed commercial wood chippers
used in landscaping and farming. Techwood ceased manufacturing operations in
fiscal 1997.
Automotive Accessories
- ----------------------
Kenco/Williams, Inc.: Manufactures, assembles, packages and distributes truck
and auto accessories for the after market parts industries. Kenco is reported as
a discontinued operation.
Note 2. Significant Accounting Policies
- ---------------------------------------
Principles of Consolidation - The consolidated financial statements include all
of the accounts of Williams Controls, Inc. and its majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents - All short-term highly liquid investments purchased
with maturity at purchase of three months or less are considered to be cash
equivalents.
Inventories - Inventories are valued at the lower of standard cost, which
approximates actual cost, or market.
Property, Plant and Equipment - Land, buildings, equipment and improvements to
existing facilities are recorded at cost. Maintenance and repairs are expensed
as incurred. Depreciation has been computed using the straight-line method over
the estimated useful lives of property and equipment as follows: buildings 31.5
years, furniture, machinery and equipment 3 to 12 years. Capitalized leases are
amortized using the same method over the shorter of the estimated useful lives
or the lease term.
Goodwill and Intangible Assets - Goodwill, the excess of cost over net assets of
acquired companies, is being amortized using the straight-line method over
periods from 15 to 40 years. At each balance sheet date, management assesses
whether there has been an impairment in the carrying value of cost in excess of
net assets of businesses acquired, primarily by comparing current and projected
sales, operating income and annual cash flows, on an undiscounted basis, with
the related annual amortization expenses as well as considering the equity of
such companies. Other intangible assets includes developed technology which is
being amortized on a straight line basis over the estimated useful life of the
asset, or seven years. In addition, intangible assets include the cost of a
patent license agreement which is being amortized on a straight line basis over
the shorter of the legal or estimated useful life of the asset, which is eleven
years.
25
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Concentration of Risk - The Company invests a portion of its excess cash in debt
instruments of financial institutions with strong credit ratings and has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. The Company has not experienced any losses on its cash
equivalents.
The Company sells its products to customers in diversified industries worldwide;
however, approximately 95% of its sales from continuing operations are to
customers in the vehicle component segment. Approximately 63% of the Company's
sales from continuing operations are electronic throttle controls ("ETC").
For the years ended September 30, 1999, 1998 and 1997, Freightliner accounted
for 27%, 21% and 16%, Navistar accounted for 15%, 16% and 16%, Volvo accounted
for 8%, 9% and 8% and General Motors accounted for 5%, 3% and 0% of net sales
from continuing operations, respectively. Approximately 20%, 15% and 14% of net
sales from continuing operations in fiscal 1999, 1998 and 1997, respectively,
were to customers outside of the United States, primarily in Canada, Mexico and
Sweden, and, to a lesser extent, in Europe, South America and Australia. See
note 15 of Notes to Consolidated Financial Statements.
Debt Issuance Costs - Costs incurred in the issuance of debt financing are
amortized over the term of the debt agreement.
Product Warranty - The Company provides a warranty covering defects arising from
products sold. The warranty is limited to a specified time period, mileage or
hours of use, and varies by product and application. The Company has provided a
reserve, which in the opinion of management is adequate to cover such warranty
costs.
Research and Development Costs - Research and development costs are expensed as
incurred.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statement of operations in the period that includes the enactment
date.
Post-retirement Benefits - Statement of Financial Accounting Standards ("SFAS")
No. 106, "Employers' Accounting for Post Retirement Benefits Other than
Pensions" requires the Company to accrue retiree insurance benefits over the
period in which employees become eligible for such benefits. The Company
implemented SFAS No. 106 by amortizing the transition obligation over twenty
years.
Earnings (loss) Per Share - Basic earnings per share ("EPS") and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". Basic EPS is calculated using the
weighted-average number of common shares outstanding for the period and diluted
EPS is computed using the weighted-average number of common shares and dilutive
common equivalent shares outstanding.
26
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Following is a reconciliation of basic EPS and diluted EPS from continuing
operations:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended
September 30, 1999 September 30, 1998
----------------------------------- -----------------------------------
Per Share Per Share
Earnings Shares Amount Earnings Shares Amount
-------- ------ --------- -------- ------ ---------
Earnings (loss) from continuing
operations $ (3,928) $ 4,611
Less - Preferred stock dividends (596) (270)
Basic EPS-
Earnings (loss) allocable to
common shareholders (4,524) 18,603,057 $ (0.24) 4,341 17,922,558 $ 0.24
Effect of dilutive securities-
Stock options and warrants - - - 564,766
Convertible preferred stock - - 270 1,321,136
----------------------------------- -----------------------------------
Diluted EPS-
Earnings (loss) allocable to
common shareholders $ (4,524) 18,603,057 $ (0.24) $ 4,611 19,808,460 $ 0.23
========= ========== ======== ======= ========== =======
Year Ended
September 30, 1997
-----------------------------------
Per Share
Earnings Shares Amount
-------- ------ ---------
Earnings from continuing
operations $ 2,515
Less - Preferred stock dividends -
Basic EPS-
Earnings allocable to common
shareholders 2,515 17,656,900 $ 0.14
Effect of dilutive securities-
Stock options and warrants - 344,899
Convertible preferred stock - -
-----------------------------------
Diluted EPS-
Earnings allocable to common
shareholders $ 2,515 18,001,799 $ 0.14
========= ========== ========
</TABLE>
At September 30, 1999, 1998 and 1997, the Company had options and warrants
covering 3,548,797, 582,236 and 336,600 shares, respectively of the Company's
common stock outstanding that were not considered in the respective diluted EPS
calculations since they would have been antidilutive. In 1999, conversion of the
preferred shares would have been anti-dilutive and, therefore, was not
considered in the computation of diluted earnings per share.
27
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Reclassifications - Certain amounts previously reported in the 1998 and 1997
financial statements have been reclassified to conform to 1999 financial
statement classifications.
Fair Value of Financial Instruments - The carrying values of the Company's
current assets and liabilities approximate fair values primarily because of the
short maturity of these instruments. The fair values of the Company's long-term
debt approximated its carrying values based on borrowing rates currently
available to the Company for loans with similar terms. The fair value of
preferred stock and receivables from an affiliate is not practicable to estimate
due to the related party nature of the underlying transaction.
Stock-Based Compensation - SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") allows companies to choose whether to account for
stock-based compensation on a fair value method, or to continue accounting for
such compensation under the method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). The
Company has chosen to continue to account for stock-based compensation using APB
25 (see Note 12).
Recent FASB Pronouncements - In June 1999 the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 137"). SFAS 137 is an amendment to SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 137 establishes accounting
and reporting standards for all derivative instruments. SFAS 137 is effective
for fiscal years beginning after June 15, 2000. The Company does not have any
derivative instruments and accordingly, the adoption of SFAS 137 will have no
impact on the Company's financial position or results of operations.
Use of Estimates in the Preparation of Financial Statements - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Management makes these
estimates using the best information available at the time the estimates are
made; however, actual results could differ materially from these estimates.
Note 3. Inventories
- -------------------
Inventories consist of the following at September 30:
1999 1998
-------- --------
Raw material $ 6,867 $ 5,152
Work in progress 697 1,333
Finished goods 2,264 4,208
-------- --------
$ 9,828 $ 10,693
======== ========
Finished goods include component parts and finished product ready for shipment.
28
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 4. Investment in and Receivables from Affiliate
- ----------------------------------------------------
At September 30, 1999 the Company had an investment in and notes receivable from
Ajay Sports, Inc. ("Ajay") in the amount of $6,652, including a $500 note
receivable reflected as a reduction in the Company's shareholders' equity
relating to the issuance of 206,719 shares of the Company's common stock to
Ajay. Ajay manufactures and distributes golf accessories and outdoor leisure
furniture primarily to retailers in the United States and during 1999, purchased
ProGolf Discount, a franchisor of golf equipment and accessories retail stores.
The Company has manufacturing rights in certain Ajay facilities through 2002
under a joint venture agreement.
The Company's investment in and note receivable from affiliate at September 30,
1999 is comprised of an investment in common and preferred stock of Ajay in the
amount of $4,565 and a secured note receivable in the amount of $1,587. In
addition, the Company could be obligated to advance to Ajay up to an additional
$1,515 under the terms of an intercreditor agreement. In August 1999, $500 was
paid to a previous lender, on behalf of Ajay, under the terms of an
intercreditor agreement and is reflected as an increase in the note receivable
from affiliate. The chairman of the Company has provided a guarantee of the
investments in and loans to Ajay. Also, at September 30, 1999 the Company had
receivables of $245 from Ajay for unpaid interest and fees incurred from May to
September, 1999 which is included in trade and other accounts receivable at
September 30, 1999. At September 30, 1998, the Company had an investment in Ajay
preferred and common stock in the amount of $5,000 and $53, respectively and a
secured note receivable from Ajay in the amount of $1,087.
Prior to July 11, 1997, the Company had guaranteed Ajay's $13,500 credit
facility and charged Ajay a fee of 1/2 of 1% per annum on the outstanding loan
amount for providing this guaranty. From July 11, 1997 through June 30, 1998,
the Company and Ajay had a joint and several loan obligation to a bank. On June
30, 1998, the Company restructured its investment in Ajay (the "Ajay
Restructuring"). The objective of the Ajay Restructuring is to separate the
Company's and Ajay's financing, eliminate Ajay's dependency on the Company for
capital and provide Ajay with adequate working capital to grow its operations
and improve shareholder value which would benefit the Company. The restructuring
provides Ajay three years to improve shareholder value at which time the notes
receivable become due and payable. No dividends are accrued and payable on the
preferred stock through July 31, 2001. The preferred stock dividend rate
increases to an annual rate of 17% in 2001 and 24% in 2002, rates which the
Company believes would require Ajay to raise capital from new sources to redeem
the preferred stock.
As a result of the Ajay Restructuring, the bank provided separate loan
facilities to the Company and Ajay. As consideration to the bank for the
separate loan facilities, the Company provided Ajay $2,000 in additional capital
during 1998 which included the purchase of Ajay notes payable of $948 previously
provided by affiliated parties of the Company, and agreed to convert $5,000 of
advances to Ajay into a new cumulative convertible preferred stock. The
preferred stock is convertible into 3,333,333 shares of Ajay common stock.
The secured promissory notes bear an annual interest rate of 16% payable
monthly. In addition, Ajay has agreed to pay the Company annual administrative
fees of $90 and a management fee for sourcing products overseas in the
amount of $80 annually.
The Company owns 686,274 shares of common stock in Ajay which represents
approximately 16% of Ajay's outstanding common stock at September 30, 1999. The
investment is recorded on the equity method of accounting due to the common
ownership of Ajay and the Company by the chairman of the Company who is also the
chairman of Ajay. For the three years ended September 30, 1999, 1998 and 1997,
the Company reported losses on its investment in Ajay in the amount of $488,
$506 and $384, respectively. In addition, the company has options to purchase
1,851,813 shares of common stock at an exercise price of $1.08. During 1999, the
investment in Ajay common stock was reduced to zero in the Consolidated Balance
Sheet as a result of the Company's equity interest in Ajay's losses since
acquisition. During the year ended September 30, 1999, the Company's investment
in Ajay's preferred stock was also reduced by $435 as a result of continuing
recognition of the Company's equity interest in Ajay's losses.
29
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Based upon the closing bid price, the market value of the investment in Ajay
common shares was approximately $558 at September 30, 1999.
Following is a summary of condensed unaudited financial information of Ajay as
of and for the twelve months ended September 30, 1999, 1998 and 1997:
1999 1998 1997
(unaudited) (unaudited) (unaudited)
----------- ----------- -----------
Current assets $ 9,193 $ 9,584 $ 14,264
Other assets 15,243 4,212 4,449
----------- ----------- -----------
$ 24,436 $ 13,796 $ 18,713
=========== =========== ===========
Current liabilities $ 4,949 $ 2,030 $ 5,031
Other liabilities 18,128 8,003 12,061
Common and preferred shareholders' equity 1,359 3,763 1,621
----------- ----------- -----------
$ 24,436 $ 13,796 $ 18,713
=========== =========== ===========
Net sales $ 13,629 $ 27,094 $ 29,063
=========== =========== ===========
Gross margin $ 1,717 $ 3,581 $ 3,772
=========== =========== ===========
Loss before income tax benefit $ (2,713) $ (2,858) $ (2,133)
=========== =========== ===========
At September 30, 1999, Ajay had approximately 4,205,000 common shares
outstanding. In addition to the Company's options and convertible preferred
stock at September 30, 1999, Ajay had outstanding preferred stock that is
convertible to approximately 1,686,000 shares of Ajay common stock and
outstanding options and warrants to purchase approximately 834,000 shares of
Ajay common stock at prices ranging from $1.08 to $6.00 per share (unaudited).
An officer of Ajay provided management services to the company as an officer of
the Company. Ajay was reimbursed approximately $114 in total for his fiscal
1999, 1998 and 1997 time and services. The Company accepted the officer's
resignation in December 1998.
Note 5. Goodwill and Intangible Assets
- --------------------------------------
At September 30, goodwill and intangible assets consist of the following:
1999 1998
---------- ----------
Goodwill $ 2,955 $ 793
Developed technology 1,820 -
Patent and patent license agreement 1,439 200
Less accumulated amortization (450) (277)
---------- ----------
$ 5,764 $ 716
========== ==========
30
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Amortization expense on intangible assets was $173, $85 and $85 for the years
ended September 30, 1999, 1998 and 1997, respectively.
Note 6. Financing Arrangements
- ------------------------------
Debt - On June 30, 1998, the Company restructured its credit facility with a
bank (the "Bank") to consist of a revolving credit facility of up to $16,500, a
$3,100 term loan and a $2,700 real estate loan. In December 1998, the Company
increased its term loan by $2,500. Under the revolver, the Company can borrow up
to $16,500 based upon a borrowing base availability calculated using specified
percentages of eligible accounts receivable and inventory. The revolver bears
interest at the Bank's prime rate plus .50% (8.25% at September 30, 1999.) The
Real Estate, Term Loan I, and Term Loan II bear interest at the Bank's prime
rate plus .75%. At the Company's option, the Company may borrow funds at the
London InterBank Offering Rate ("Libor") plus 3.00%. The loans under the
revolving credit facility mature on July 11, 2001. The Real Estate loan is being
amortized over twenty years and the Term Loan I is being amortized over seven
years with all remaining principal outstanding due at July 11, 2001. In July
1999, The Company borrowed $2,500 from the Bank under a new term loan ("Term
Loan III") under the existing facility. Interest on this term note bears
interest at the Bank's prime rate plus 1.25%. This term note matures on February
1, 2000. All loans are secured by substantially all of the assets of the
Company.
The loan agreement prohibits payment of dividends by the Company except for the
Series A Preferred dividend, and requires the Company to maintain minimum
working capital of $12,000 and minimum tangible net worth, as defined, of
$18,000. The loan also prohibits additional indebtedness and common stock
repurchases except for through the use of proceeds from stock options exercised,
and restricts capital expenditures to an amount not to exceed $10,500 for the
two years ended September 30, 1999 and not to exceed $2,500 annually thereafter.
In addition, the loan limits incremental operating lease obligations to $600
annually. Fees under the loan agreement include an unused revolver fee of .25%
and a prepayment penalty fee declining from 3% in 1998 to .5% in the year 2001.
The prepayment fee is waived if the loan is repaid with proceeds from the sale
of assets or is refinanced with an affiliate of the Bank. At September 30, 1999,
the Bank waived compliance with all financial covenants as the Company was out
of compliance at September 30, 1999. The waivers were obtained in a manner which
allows the Company's debt to be classified as current and long-term based on the
payment terms of the loans at September 30, 1999.
From July 11, 1997 through June 30, 1998, the Company and Ajay had a joint and
several loan with the Bank. Under the restructured facility, all joint and
several liability, cross collateral agreements and guarantees of the Company
with respect to the Ajay portion of the credit facility prior to the
restructuring have been terminated. In consideration to the Bank for the
restructured facility, the Company agreed to invest $2,000 in Ajay and convert
$5,000 of advances to Ajay into preferred stock.
Prior to July 11, 1997, the Company had guaranteed the bank debt of Ajay with a
previous lender which debt was in default under Ajay's loan agreement. The
Company and Ajay refinanced their bank debt on July 11, 1997 with the Bank under
a $34,088 three-year revolving joint and several liability credit and term loan
agreement. As a result of a shortfall in Ajay's available collateral, the
previous lender provided bridge financing of $2,340 to Ajay under an
inter-creditor agreement. The bridge loan is to be repaid from any proceeds from
the sale of Kenco, the sale of other assets, from a specified percentage of
future Ajay and Company cash flow and from monthly principal payments by Ajay.
The balance of the bridge loan was $1,515 at September 30, 1999.
31
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
The Company's long-term debt consists of the following at September 30: 1999 1998
-------- --------
Bank revolving credit facility due July 11, 2001; $6,278 bearing $ 14,278 $ 13,686
interest at a variable interest rate of 8.25% at September 30, 1999
and $8,000 at variable interest rates (7.625% - 7.6875% at September 30,
1999).
Bank Term Loan I, due July 11, 2001, $276 bearing interest at a 3,426 3,011
variable interest rate of 8.5% at September 30, 1999, payable in
monthly installments of $60, and $3,150 at a variable interest rate
(7.875% at September 30, 1999) due at maturity.
Bank Term Loan II, due July 11, 2001 bearing interest at 9.0%, payable 709 -
in monthly installments of $71, with remaining balance of $69 due at
maturity.
Bank Term Loan III, due February 1, 2000, variable interest rate of 2,500 -
9.5% at September 30, 1999, payable in monthly installments of $139
beginning in November 1999, with remaining balance due of $2,083 due at
maturity.
Real Estate loan, due July 11, 2001, variable interest rate 8.5% at 2,381 2,514
September 30, 1999, payable in monthly installments of $11, with
remaining balance of $2,248 due at maturity.
Unsecured debt, due February 1, 2005, variable interest rate (9.25% at 700 700
September 30, 1999), interest only, balance due at maturity.
Real Estate loan, due December 5, 1999, variable interest rate (9.25% 570 675
at September 30, 1999), payable in monthly installments of $12, with
remaining balance of $546 due at maturity.
Sale and leaseback financing, repaid in December, 1998. - 4,600
Mortgage loan, repaid in July, 1999. - 1,020
Other 5 251
-------- --------
24,569 26,457
Less current portion 4,188 1,083
-------- --------
$ 20,381 $ 25,374
======== ========
</TABLE>
32
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Maturities of long-term debt at September 30, 1999 are as follows:
2000 $ 4,188
2001 19,681
2002 -
2003 -
2004 -
Thereafter 700
--------
$ 24,569
========
Capital Leases - The Company has acquired certain assets, primarily machinery
and equipment, through capital leases. The leases have terms ranging from three
to seven years, and are payable in monthly and quarterly installments with
interest (at rates ranging from 8.8% to 10.5%).
Future minimum lease payments under capital leases are as follows for the years
ending September 30:
2000 $ 1,466
2001 1,444
2002 1,498
2003 1,040
2004 721
Thereafter 571
--------
Total future minimum lease payments $ 6,740
Less - Amount representing interest 1,373
--------
Present value of future minimum lease payments 5,367
Less - Current portion 1,005
--------
$ 4,362
========
During 1999, the Company incurred additional capital leases of $1,819. Capital
lease obligations, all of which were incurred in fiscal 1998, totaled $4,146 at
September 30, 1998 and $334 was classified as the current portion of capital
lease obligations at September 30, 1998.
33
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 7. Patent License Agreement
- --------------------------------
In conjunction with the acquisition in 1999 of the ProActive Pedals division of
Active Tool & Manufacturing Co., Inc., (Note 18) the Company entered into a
patent license agreement with a private inventor, under which the Company holds
an exclusive, worldwide license for three patents covering adjustable foot
pedals. The license agreement remains in effect for the life of the patents. The
Company paid an initial license fee of $600 and the agreement requires yearly
minimum payments of $95 to the inventor for a period of approximately ten years.
Accrued minimum royalties consist of the following at September 30, 1999:
Minimum future royalties $ 1,045
Less imputed interest (406)
--------------
Present value of payments 639
Less current portion included in
Accrued expenses (78)
--------------
Long-term portion included in
Other Liabilities $ 561
==============
Note 8. Pension Plans
- ---------------------
The Company maintains two pension plans; one plan covers salaried employees and
the other plan covers the Company's hourly employees. Annual net periodic
pension costs under the pension plans are determined on an actuarial basis. The
Company's policy is to fund these costs accrued over 15 years and obligations
arising due to plan amendments over the period benefited. The assets and
liabilities are adjusted annually based on actuarial results.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Salaried Employees Plan Hourly Employees Plan
------------------------------- ------------------------------
September 30, 1999 1998 1999 1998
------------------------------- ------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 3,300 $ 2,901 $ 3,792 $ 3,606
Service cost 103 105 133 129
Interest cost 219 213 251 266
Actuarial (gain) loss 42 203 (313) (86)
Benefits paid (118) (122) (131) (123)
------------------------------- ------------------------------
Benefit obligation at end of year $ 3,546 $ 3,300 $ 3,732 $ 3,792
------------------------------- ------------------------------
</TABLE>
34
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Salaried Employees Plan Hourly Employees Plan
------------------------------- ------------------------------
September 30, 1999 1998 1999 1998
------------------------------- ------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $ 2,916 $ 3,091 $ 3,180 $ 3,379
Actual return on plan assets 393 (53) 559 (155)
Employer contribution - - - 80
Plan participants' contributions - - - -
Benefits paid (118) (122) (131) (124)
------------------------------- ------------------------------
Fair value of plan assets at end of year $ 3,191 $ 2,916 $ 3,608 $ 3,180
------------------------------- ------------------------------
Funded status (355) (384) (124) (612)
Unrecognized actuarial (gain) loss (114) 302 (123) 476
Unrecognized prior service cost 209 (126) 292 333
------------------------------- ------------------------------
Net amount recognized $ (260) $ (208) $ 45 $ 197
------------------------------- ------------------------------
Amounts recognized in the statement of
financial position consist of:
Prepaid benefit cost $ - $ - $ 45 $ 197
Accrued benefit liability (260) (208) (74) (631)
Intangible asset - - 74 333
Accumulated other pretax comprehensive income - - - 298
------------------------------- ------------------------------
Net amount recognized $ (260) $ (208) $ 45 $ 197
------------------------------- ------------------------------
Weighted-average assumptions as of September
30, 1999 1998 1999 1998
------------------------------- ------------------------------
Discount rate 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets 9.00 9.00 9.00 9.00
Rate of compensation increase 4.00 4.00 - -
Salaried Employees Plan Hourly Employees Plan
--------------------------------- -----------------------------
Components of net periodic benefit cost
for the years ended September 30: 1999 1998 1997 1999 1998 1997
--------------------------------- -----------------------------
Service Cost $ 103 $ 105 $ 115 $ 133 $ 129 $ 112
Interest Cost 219 213 210 251 266 242
Expected return on plan assets (257) (273) (233) (280) (307) (244)
Amortization of prior service cost (12) (12) (12) 41 41 33
Amortization of (gain) loss - - - 7 - -
--------------------------------- -----------------------------
Net periodic benefit cost $ 53 $ 33 $ 80 $ 152 $ 129 $ 143
--------------------------------- -----------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and the fair
value of plan assets for the hourly employees plan with accumulated benefit
obligations in excess of plan assets were $3,732, $3,637 and $3,608,
respectively as of September 30, 1999 and $3,792, $3,614 and $3,180,
respectively as of September 30, 1998.
35
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 9. Property, Plant and Equipment
- -------------------------------------
At September 30, 1999 and 1998, property, plant and equipment consist of the
following:
1999 1998
---- ----
Land and land improvements $ 2,499 $ 2,695
Buildings 6,241 8,748
Machinery and equipment 15,966 12,099
Office furniture and equipment 4,368 3,255
--------- ---------
29,074 26,797
Less accumulated depreciation (8,299) (6,784)
--------- ---------
$ 20,775 $ 20,013
========= =========
Net property, plant and equipment of $20,775 and $20,013 at September 30, 1999
and 1998, respectively, excludes certain machinery, equipment and office
equipment held for disposition. Capital leases for machinery and equipment and
office furniture and equipment included above were $6,490 and $5,200 at
September 30, 1999 and 1998, respectively. Accumulated depreciation on capital
leases was $673 and $542 at September 30, 1999 and 1998, respectively.
Note 10. Impairment of Assets
- -----------------------------
During the year ended September 30, 1999 the Company recognized a $5,278 loss
from the impairment of assets related to Kenco, the Company's former Automotive
Accessories business unit, consisting of the following items:
Impairment of non-voting preferred stock and notes and
accounts receivable $4,655
Impairment of property 623
------
Total loss from impairment of assets $5,278
======
At the date the impairment loss was taken, the Company had non-voting preferred
stock and notes and accounts receivable related to Kenco of $797 and $3,858.
Since the sale of the operating assets of Kenco to Kenco Products, Inc. ("KPI")
in 1998, KPI has reported operating losses and experienced cash flow and other
financing difficulties. In addition, KPI has not been able to make payments on
its notes and accounts payable to the Company. KPI's bank has notified KPI it is
in default under its loan agreement. In consideration of this and after
evaluation of the business prospects of KPI and its need for additional capital,
the Company determined it was not probable that it would recover the value of
the preferred stock and notes and accounts receivable, and an impairment loss
totaling $4,655 was recorded for the year ended September 30, 1999.
In addition, the Company recorded an impairment loss related to certain property
retained from the Kenco sale. The majority of the impairment loss for property
related to the sale in July 1999 of a building and land which were being leased
by KPI from the Company. This property was sold, and after retiring $891 of debt
secured by the property, resulted in cash proceeds of $1,192. The proceeds to
the Company, after deducting approximately $692 of expenses to assist in the
relocation of KPI and to ready the building for sale were paid to a previous
lender, on behalf of an affiliated company, under the terms of an intercreditor
agreement. The estimated loss on the sale of land and building, which has been
recorded in loss from impairment of assets, is $528.
36
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 11. Income Tax Expense (Benefit)
- -------------------------------------
The provision for income tax expense (benefit) is as follows for the years ended
September 30:
1999 1998 1997
---- ---- ----
Continuing operations:
Current $ 1,078 $ 2,462 $ 3,610
Deferred (2,565) (96) (1,368)
--------- -------- --------
(1,487) 2,366 2,242
Discontinued operations (3,189) (2,932) (3,208)
--------- -------- --------
$ (4,676) $ (566) $ (966)
========= ======== ========
The reconciliation between the effective tax rate and the statutory federal tax
rate on earnings (loss) from continuing operations as a percent is as follows:
1999 1998 1997
---- ---- ----
Statutory federal income
tax rate (34.0) 34.0 34.0
State taxes, net of federal
income tax benefit (4.0) 4.0 4.0
Credits for state income
tax refunds - (8.4) -
Effect of change in valuation
allowance 8.8 3.2 7.4
Other 1.7 1.1 1.7
--------- -------- --------
(27.5) 33.9 47.1
========= ======== ========
37
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1999 1998
Deferred tax assets: ---- ----
Inventories, due to obsolescence reserve and additional
costs inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 $ 253 $ 203
Warranty reserves 550 313
Accrual for compensated absences 130 125
Accrual for retiree medical benefits 689 522
Accounts receivable reserves 225 117
Estimated loss from writedown of assets of automotive
accessories segment 1,824 288
Estimated loss on disposal of agriculture equipment segment 3,105 978
Equity interest in loss on affiliate 705 517
Tax gain on sale/leaseback 628 628
In-process research and development 672 -
Accrued other reserves 249 12
Pension liability adjustment - 114
State net operating loss carryforwards 2,452 873
------- -------
Total gross deferred tax assets 11,482 4,690
Less valuation allowance 2,927 840
------- -------
Net deferred tax assets 8,555 3,850
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and amortization 1,659 1,588
Intangible asset recorded for books - 58
------- -------
Net deferred income tax asset $ 6,896 $ 2,204
======= =======
Current deferred income tax assets $ 3,871 $ 2,037
Long-term deferred income tax assets 4,684 1,813
Long-term deferred income tax liabilities (1,659) (1,646)
------- -------
$ 6,896 $ 2,204
======= =======
</TABLE>
At September 30, 1999, the Company has approximately $35,000 of state net
operating loss carry forwards, which are available to the Company in certain
state tax jurisdictions and expire in 2006 through 2013. During the year ended
September 30, 1999, the Company increased its valuation allowance against
certain state net operating loss and capital loss carry-forwards it does not
expect to utilize.
38
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 12. Shareholders' Equity
- -----------------------------
Common Stock - In July, 1999, the Company completed a private placement of
1,244,065 shares of common stock of the Company and received net proceeds of
$3,379. In addition, 87,084 shares of the Company's common stock was issued in
lieu of the underwriting fee, for a total of 1,331,149 shares issued in
conjunction with the offering. For every share issued in the private placement,
the purchasing shareholders received warrants to purchase .35 common shares or
465,902 additional shares of common stock, at $3.125 per share. In addition, for
every share issued to the placement agent, the placement agent received warrants
to purchase .35 common shares, or 87,084 additional shares of common stock, at
$3.30 per share. The warrants issued may be exercised at any time over the next
five years. The fair value of such warrants and the shares in lieu of the
underwriting fee, totaling $1,118, is included in "Common stock issued in
private placement" with a corresponding charge to "Equity issuance costs" in the
accompanying Consolidated Statements of Shareholders' Equity.
Preferred Stock - In April, 1998, the Company completed a private placement of
80,000 shares of Series A convertible redeemable preferred stock at $100 per
share, or $8,000 in gross proceeds and received net proceeds of $7,337. The
preferred stock bears a dividend rate of 7.5%, which is payable quarterly, and
is convertible at the option of the holder into 2,909,091 shares of the
Company's common stock. The preferred stock is redeemable at the Company's
option anytime after April 21, 2001. The preferred stock is not mandatorily
redeemable. In addition, the Company can force conversion of the preferred stock
into common shares if the Company's common stock trades at or above $4.125 for
twenty out of thirty consecutive trading days. Holders of the Series A preferred
stock are entitled to a number of votes equal to those they would have assuming
conversion into common stock, without taking into account fractional shares.
Commencing with the quarterly period beginning July 1, 2001, the annual dividend
rate will increase each quarter by 2.5% up to a maximum dividend of 24% per
annum. The Company used the proceeds of the offering to provide $3,200 of debt
financing to the purchaser of the Portland, Oregon manufacturing facility,
repayment of a bank term loan of $667 and an investment of $1,500 in Ajay.
The remaining balance was used for general working capital purposes.
Stock Options and Warrants - The Company has issued stock options and warrants
at exercise prices ranging from $.41 - 3.63 per share, the market value at the
date of issuance. Any remaining unexercised options and warrants expire in
fiscal 2000. The stock option activity during the periods indicated is as
follows:
Shares
Subject to
Options Option Prices
---------- -------------
Outstanding at September 30, 1996 340,000 $0.41 - 3.63
Granted - -
Exercised - -
Canceled - -
--------------------------------
Outstanding at September 30, 1997 340,000 0.41 - 3.63
Granted - -
Exercised (150,000) 0.41
Canceled - -
--------------------------------
Outstanding at September 30, 1998 190,000 0.41 - 3.63
Granted - -
Exercised (150,000) 0.41
Canceled (10,000) -
--------------------------------
Outstanding at September 30, 1999 30,000 $3.63
================================
39
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
In addition to the stock options noted above, the Company has two qualified
stock option plans. The Company adopted the 1993 Stock Option Plan ("the 1993
Plan") which reserves an aggregate of 1,500,000 shares of the Company's common
stock for the issuance of stock options which may be granted to employees,
officers and directors of and consultants to the Company. Under the terms of the
1993 Plan, the Company may grant "incentive stock options" or "non-qualified
options" at not less than the fair market value on the date of grant. Options
granted under the 1993 Plan are exercisable as to 25 percent of the shares
covered thereby commencing six months after the earlier of the date of grant or
the date of employment, and as to an additional 25%, cumulatively, on the first,
second and third anniversaries of the date of grant, and expire ten years after
the date of grant. In each of January, 1998 and in February, 1999, the Company
reserved an additional 1,500,000 shares of the Company's common stock for the
issuance of stock options under the 1993 Plan. At September 30, 1999, the
Company had 1,767,825 shares available for future grants.
Stock option activity during the periods indicated under the 1993 Plan are as
follows:
Shares Shares
Available for Subject to
Grant Options Option Prices
------------- ---------- -------------
Outstanding at September 30, 1996 1,100,000 400,000 $1.94 - 3.63
Granted (1,078,800) 1,078,800 1.94 - 2.63
Exercised - - -
Canceled 366,925 (366,925) 1.94 - 3.63
--------------------------------------------
Outstanding at September 30, 1997 388,125 1,111,875 1.94 - 3.63
Additional shares reserved 1,500,000 - -
Granted (1,183,887) 1,183,887 2.31 - 3.00
Exercised - - -
Canceled 117,975 (117,975) 1.94 - 2.94
--------------------------------------------
Outstanding at September 30, 1998 822,213 2,177,787 1.94 - 3.63
Additional shares reserved 1,500,000 - -
Granted (744,000) 744,000 2.06 - 3.00
Exercised 51,750 (51,750) 1.94 - 2.50
Canceled 137,862 (137,862) 1.94 - 2.94
--------------------------------------------
Outstanding at September 30, 1999 1,767,825 2,732,175 $1.94 - 3.00
============================================
During 1996 the shareholders of the Company approved a stock option plan which
reserves an aggregate of 200,000 shares of the Company's stock for non-employee
Directors of the Company (the "1995 Plan"). The 1995 Plan provides for automatic
granting of 10,000 options to each non-employee director of the Company at a
price equal to the market value on the date of grant which is the date of the
annual shareholders' meeting each year, exercisable for 10 years after the date
of the grant. These options are exercisable as to 25% of the shares thereby on
the date of grant and as to an additional 25%, cumulatively on the first, second
and third anniversaries of the date of grant. At September 30, 1999 there were
30,000 shares available for grant under the 1995 Plan.
40
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Stock option activity during the periods indicated under the 1995 Plan are as
follows:
Shares Shares
Available for Subject to
Grant Options Option Prices
------------- ---------- -------------
Outstanding at September 30, 1996 140,000 60,000 $3.63 - 3.66
Granted (30,000) 30,000 2.66
Exercised - - -
Canceled - - -
--------------------------------------------
Outstanding at September 30, 1997 110,000 90,000 2.66 - 3.66
Granted (30,000) 30,000 2.44
Exercised - - -
Canceled - - -
--------------------------------------------
Outstanding at September 30, 1998 80,000 120,000 2.44 - 3.66
Granted (50,000) 50,000 2.68
Exercised - - -
Canceled - - -
--------------------------------------------
Outstanding at September 30, 1999 30,000 170,000 $2.44 - 3.66
============================================
Statement of Financial Accounting Standards No. 123
- ---------------------------------------------------
During 1995, the Financial Accounting Standards Board issued SFAS 123 which
defines a fair value based method of accounting for employee stock options and
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB 25. Entities electing to continue to
use the accounting treatment in APB 25 must make pro forma disclosures of net
earnings (loss) and, if presented, earnings per share, as if the fair value
based method of accounting defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the company has computed, for pro forma disclosure purposes,
the value of all options granted during the years ended September 30, 1999, 1998
and 1997, using the Black-Scholes option pricing model as prescribed by SFAS 123
using the following weighted average assumptions for grants:
Year Ended September 30,
------------------------------------
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.13% 6.00% 6.00%
Expected dividend yield 0% 0% 0%
Expected lives 7 years 7 years 7 years
Expected volatility 55.5% 57.1% 57.1%
41
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Using the Black-Scholes methodology, the total value of options granted during
the years ended September 30, 1999, 1998 and 1997, was $1,064, $1,458 and $1,357
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically three years). The weighted average per share
fair value of options granted during the years ended September 30, 1999, 1998
and 1997, was $1.36, $1.60 and $1.27 respectively. If the Company had accounted
for its stock-based compensation plans in accordance with SFAS 123, the
Company's net earnings (loss) and net earnings (loss) per share would
approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended
September 30, 1999 September 30, 1998 September 30, 1997
------------------------- ------------------------- -------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
Net earnings (loss) $ (9,539) $ (10,203) $ 312 $ (176) $ (2,037) $ (2,284)
Basic net earnings
(loss) per share (0.54) (0.60) 0.00 (0.02) (0.12) (0.13)
Diluted net earnings
(loss) per share (0.54) (0.60) 0.00 (0.02) (0.12) (0.13)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to the year ended
September 30, 1996, and additional awards are anticipated in future years.
The following table summarizes information about stock options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------------- ----------------------------------
Weighted Number of shares
Number Average Weighted Exercisable at Weighted
Range of Outstanding at Remaining Average September 30, Average
Exercise Prices September 30, 1999 Contractual Exercise Price 1999 Exercise
Life - Years Price
- ------------------ -------------------- ---------------- --------------- ------------------ ------------
$1.94 - 2.74 2,672,575 8.3 $2.28 1,435,512 $2.25
2.75 -3.66 259,600 6.3 3.21 218,475 3.26
- ------------------ -------------------- ---------------- --------------- ------------------ ------------
$ 1.94 - 3.66 2,932,175 8.1 $2.36 1,653,987 $2.38
</TABLE>
At September 30, 1998 and 1997, 1,171,121 and 774,000 options, respectively,
were exercisable at weighted average exercise prices of $2.13 per share and
$1.68 per share, respectively.
42
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 13. Stock Repurchase Program
- ---------------------------------
In January 1996 the Company initiated a stock repurchase program of up to
1,000,000 shares of its common stock. Under this program the Company acquired
195,200 shares during fiscal 1996 at an average price of $2.77 per share, which
include 100,000 shares of common stock at $2.75 per share representing the
market price on the date purchased from Enercorp, Inc., a publicly-held business
development company which beneficially owns approximately 11% of the Company's
stock. The Chairman and President of the Company is a significant shareholder of
Enercorp. During the year ended September 30, 1997, the Company issued 65,000
treasury shares at $2.50 per share to Enercorp and a consultant for acquisition
advisory work. The Loan prohibits further purchases under this program except
for share repurchases allowed from the proceeds of employee stock option
exercise.
Note 14. Discontinued Operations
- --------------------------------
Agriculture Equipment Segment - In December 1998, the Company announced its
intention to divest its Agriculture Equipment Segment. These operations are
reflected as discontinued operations for all periods presented in the Company's
Statements of Operations. During 1999, the Company recorded an estimated net
loss on disposal of $5,611, net of tax benefit of $3,189, or $(0.30) per common
share, associated with the divestiture of the Agriculture Equipment Segment. The
loss is based upon events and information which resulted in management's revised
estimate of the net realizable value of the Agriculture Equipment Segment. The
revised estimate is based upon contract negotiations and lower than anticipated
bids for portions of the segment which resulted in a write-down of certain
assets and a provision for associated costs. Liabilities of the Agriculture
Equipment Segment to be retained by the Company as of September 30, 1999,
amounted to $462 included in the accounts payable and $217 included in the
accrued expenses caption of the accompanying Consolidated Balance Sheet for
current payables and accruals. Additionally, $570 is included in the current
portion of Long-term Debt and Capital Leases and $700 is included in the
Long-term Debt and Capital Leases obligations caption for debt to be retained.
Under generally accepted accounting principles, a provision for loss on
discontinued operations has been included based on management's best estimates
of the amounts expected to be realized on the sale of the Agriculture Equipment
Segment. While estimates are based on an analysis of the segment, including
appraisals of equipment, there have been limited recent sales of comparable
assets to consider in preparing such valuations. The amounts the Company will
ultimately realize could differ materially in the near term from the amounts
assumed in arriving at the loss anticipated on disposal of the discontinued
operations.
43
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The summarized results for the Agriculture Equipment segment for the years ended
September 30 are as follows:
1999 1998 1997
---- ---- ----
Net sales $ 7,225 $ 8,500 $ 9,581
==================================
Loss from operations before allocated
interest expense and income tax
benefits $ - $ (2,239) $ (2,284)
Allocated interest expense - (279) (433)
----------------------------------
Loss from operations before income
tax benefit - (2,518) (2,717)
Income tax benefit - 959 1,087
Loss allocable to minority interest - 288 250
----------------------------------
Loss from operations - (1,271) (1,380)
Loss on disposal before interest
and income taxes (8,700) (2,273) -
Allocated interest expense (100) (277) -
----------------------------------
Loss on disposal before income tax
benefit (8,800) (2,550) -
Income tax benefit 3,189 972 -
Loss allocable to minority interest - 175 -
----------------------------------
Loss on disposal (5,611) (1,403) -
----------------------------------
Total loss on discontinued operations $(5,611) $ (2,674) (1,380)
==================================
The net assets of the Agriculture Equipment segment held for disposition
included in the accompanying Consolidated Balance Sheet, net of writedown to
estimated net realizable value, as of September 30, 1999 and 1998, are as
follows:
1999 1998
Current assets: ---- ----
Accounts receivable and inventory, net $ 360 $ 5,787
========================
Long term assets:
Property, plant and equipment, net $ 500 $ 3,424
========================
The Company has elected to allocate interest expense to discontinued operations
based upon the net assets of the segment being disposed of at each respective
year-end.
Automotive Accessories Segment - On March 16, 1998, the Company completed the
sale of a substantial portion of the assets of Kenco, to Kenco Products, Inc.
("KPI"). The principal owner of KPI is Colfax Group, Inc., a Delaware
corporation. One of the principal owners of Colfax Group, Inc. had been acting
as general manager in charge of operating the business of Kenco. Colfax Group,
Inc. is unrelated to the Company.
44
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Consideration to the Company consisted of $1,000 cash, $430 of receivables,
assumption of $1,000 of liabilities and 2,000 shares of non-voting convertible
preferred stock of KPI. Under the agreement, KPI agreed to purchase $2,600 of
Kenco inventory during the six months following the sale. Approximately $430 of
inventory was unsold at September 30, 1998 which was purchased subsequent to
year-end. The sale was recorded based upon the estimated fair market value of
the assets disposed of. The Company previously reported Kenco as a discontinued
operation beginning with the measurement date of May 8, 1997. The 1997 estimated
pre-tax loss on disposal of $3,276 represented estimated future operating losses
of which $500 remained as an estimated liability at September 30, 1997. For the
year ended September 30, 1998, the Company reported an additional loss on the
sale of Kenco in the amount of $2,626 before income tax benefit resulting in an
additional net loss on disposal of discontinued operations of $1,625.
Colfax and one of the principal owners of Colfax Group, Inc. has guaranteed the
obligations of KPI to Kenco. The Company has a security interest in all of the
assets of KPI subordinate to the security interest of KPI's bank.
The summarized results for Kenco for the years ended September 30 are as follows
reflecting operating results through the measurement date:
1998 1997
---- ----
Net sales $ 4,964 $ 8,666
========= =========
Loss from operations before allocated interest
expense and income tax benefit - (1,727)
Allocated interest expense - (290)
--------- ---------
Loss from operations before income tax benefit - (2,017)
Income tax benefit - 810
--------- ---------
Loss from operations - (1,207)
Loss on disposal before interest and income
taxes (2,428) (2,771)
Allocated interest expense (198) (505)
--------- ---------
Loss on disposal before income tax benefit (2,626) (3,276)
Income tax benefit 1,001 1,311
--------- ---------
Loss on disposal (1,625) (1,965)
--------- ---------
Total loss on discontinued operations $ (1,625) $ (3,172)
========= =========
Note 15. Business Segment Information
- -------------------------------------
In the fourth quarter of 1999, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 changes the method
of disclosing segment information to the manner in which the Company's chief
operating decision maker organizes the components for making operating
decisions, assessing performance and allocating resources. The Company has
organized the segments based on the type of products sold which are described in
Note 1. As required by SFAS 131, all prior years' segment data has been
restated.
The Company accounts for its segments under the same policies as described in
the principal accounting policies footnote. Intersegment revenues and related
earnings are not material. Management evaluates segment performance primarily
based on revenue and operating income; therefore, other items included in pretax
income, consisting primarily of interest income or expense, are not reported in
segment results.
45
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Operating income is net of all corporate expenses, which are allocated based on
measurable services provided to each segment or for general corporate expenses
which are allocated on a revenue and capital basis.
Identifiable corporate assets consist primarily of investment in an affiliated
company and other assets, and deferred taxes.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
-------- -------- --------
NET SALES BY CLASSES OF SIMILAR PRODUCTS FROM CONTINUING OPERATIONS
Vehicle Components $ 58,136 $ 54,071 $ 42,914
Electrical Components and GPS 3,286 3,575 3,757
--------------------------------------
$ 61,422 $ 57,646 $ 46,671
EARNINGS (LOSS) FROM CONTINUING OPERATIONS ======================================
Vehicle Components:
Before loss from impairment of assets
and acquired in-process research
and developed expense $ 6,632 $ 10,992 $ 7,609
Loss from impairment of assets (5,278) - -
Acquired in-process research and
development expense (1,750) - -
--------------------------------------
Total Vehicle Components (396) 10,992 7,609
Electrical Components and GPS (2,635) (2,001) (1,217)
--------------------------------------
$ (3,031) $ 8,991 $ 6,392
======================================
IDENTIFIABLE ASSETS
Vehicle Components $ 54,652 $ 47,038 $ 26,017
Electrical Components and GPS 8,992 8,353 7,728
--------------------------------------
Total assets - continuing operations 63,644 55,391 33,745
Automotive accessories - discontinued operations - 3,963 8,699
Agricultural equipment - discontinued operations 860 9,211 5,869
--------------------------------------
Total assets $ 64,504 $ 68,565 $ 48,313
======================================
CAPITAL EXPENDITURES
Vehicle Components $ 3,721 $ 6,446 $ 420
Electrical Components and GPS 1,046 386 246
--------------------------------------
Total capital expenditures - continuing operations 4,767 6,832 666
Automotive accessories - discontinued operations - - 330
Agricultural equipment - discontinued operations 92 191 145
--------------------------------------
Total capital expenditures $ 4,859 $ 7,023 $ 1,141
======================================
DEPRECIATION AND AMORTIZATION
Vehicle Components $ 1,652 $ 1,077 $ 756
Electrical Components and GPS 404 329 315
--------------------------------------
Total depreciation and amortization - continuing operations 2,056 1,406 1,071
Automotive accessories - discontinued operations - 179 231
Agricultural equipment - discontinued operations 92 309 304
--------------------------------------
Total depreciation and amortization $ 2,148 $ 1,894 $ 1,606
======================================
</TABLE>
46
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
For geographic information, revenues are allocated between the United States and
International, depending on whether the shipments are to customers within the
United States or located outside the United States. Long-lived assets outside
the United States were immaterial for all periods presented.
Year ended September 30, 1999 1998 1997
---- ---- ----
Canada $ 5,493 $ 3,377 $ 2,795
Sweden 1,868 2,073 1,439
Mexico 2,276 35 -
Other 2,947 3,201 2,121
------- ------- -------
Net Sales-export 12,584 8,686 6,355
United States 48,838 48,960 40,316
------- ------- -------
$61,422 $57,646 $46,671
======= ======= =======
Note 16. Other Benefit Plans
- ----------------------------
The Company maintains an Employee Stock Ownership Plan (ESOP) for non-union
employees. The ESOP may buy shares of the Company's stock from time to time on
the open market or directly from the Company. The ESOP has been authorized to
borrow up to $1,000 from the Company or financial institutions to finance its
purchases. At September 30, 1999 all shares had been allocated under the plan
and there were no amounts under the loan outstanding.
The Company sponsors salaried employees and union employees matching 401(k)
plans, in which eligible employees may elect to contribute a portion of their
compensation.
Note 17. Post Retirement Benefits other than Pensions
- -----------------------------------------------------
The Company provides health care and life insurance benefits for certain of its
retired employees ("Post Retirement Plan"). These benefits are subject to
deductibles, co-payment provisions and other limitations. The Company may amend
or change the Post Retirement Plan periodically.
Effective October 1, 1993 the Company adopted SFAS No. 106, "Employers'
Accounting for Post Retirement Benefits other than Pensions" ("SFAS 106"). SFAS
106 requires companies to accrue the cost of post retirement health care and
life insurance benefits within employees' active service period rather than
recognizing these costs on a cash basis as had been prior practice.
The Company elected to amortize the Accumulated Post Retirement Benefit
obligation at October 1, 1993 over twenty years as a component of post
retirement benefits expense.
47
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
The following table provides information on the post retirement plan status at
September 30, 1999:
Accumulated Post Retirement Benefit Obligation 1999 1998
---- ----
Retirees $ 1,503 $ 1,592
Fully eligible active participants 662 660
Other active Plan participants 1,312 1,333
-----------------------
3,477 3,585
Plan assets - -
-----------------------
Accumulated post retirement benefit
obligation in excess of Plan assets 3,477 3,585
Unrecognized gain 500 147
Unrecognized prior service cost (576) (649)
Unrecognized transition obligation (1,606) (1,720)
-----------------------
Accrued post retirement benefit cost
in the consolidated balance sheet $ 1,795 $ 1,363
=======================
Post retirement benefits expense included the following components for the years
ended September 30:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Service cost $ 89 $ 92 $ 74
Interest cost 264 239 218
Amortization of unrecognized net obligation at transition 178 190 165
-----------------------------
Post retirement benefits expense $531 $521 $457
=============================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated post
retirement benefit obligation (APBO) ranged between 4.5%-10% in the first year,
declining to 4.5% - 5.0% after 8 years. The discount rate used in determining
the APBO was 7.75% and 6.75% for the years ended September 30, 1999 and 1998,
respectively.
If the assumed medical costs trends were increased by 1%, the APBO as of
September 30, 1999 would increase by $234, and the aggregate of the services and
interest cost components of the net annual post retirement benefit cost would be
increased by $30. If the assumed medical costs trends were decreased by 1%, the
APBO as of September 30, 1999 would decrease by $306, and the aggregate of the
services and interest cost components of the net annual post retirement benefit
cost would be decreased by $42.
48
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 18. Acquisition
- --------------------
In July, 1999, the Company purchased the ProActive Pedals division of Active
Tools Manufacturing Co., Inc. ProActive Pedal is a designer and developer of
patented adjustable foot pedal systems and modular pedal systems. The purchase
price included $5,750 in cash, plus the assumption of approximately $286 in
liabilities. In addition, the Company entered into a patent license with the
patent holder which required an initial payment of $600 and minimum annual
royalty payments of $95 per year for ten years. Assets acquired include tooling
designs, technology and patent rights on adjustable foot pedal systems, as well
as designs of modular foot pedal systems. The acquisition was accounted for
using the purchase method of accounting and the results of operations of
ProActive have been included in the consolidated results of operations of the
Company from the acquisition date. The purchase price allocation resulted in a
$1,750 charge to operations for acquired in-process research and development,
determined by independent appraisal, for the year ended September 30, 1999. The
technological feasibility of the acquired technology, which has no alternative
future use, had not been established prior to the purchase. The allocation of
the purchase price also resulted in $1,820 being allocated to developed
technology which is being amortized over a seven year period. The excess of the
purchase price over the fair value of the assets acquired and liabilities
assumed of $2,162 was recorded as goodwill and is being amortized on a straight
line basis over a 15 year period.
The following unaudited pro forma results for the years ended September 30, 1999
and 1998, includes the results of ProActive Pedals assuming such acquisitions
occured as of October 1, 1997, and includes the acquired in-process research and
development charge in the period when incurred:
1999 1998
---- ----
Sales $63,059 $57,856
Operating income (loss) (5,401) 6,360
Loss from continuing operations (11,137) (1,495)
Net loss per share - basic (0.63) (0.09)
Net loss per share - diluted (0.63) (0.09)
The purchase was financed through the private placement of 1,331,149 shares of
the Company's common stock with net proceeds of approximately $3,379. In
addition, the Company borrowed $2,500 from its bank under a new term loan
facility ("Term Loan III").
Note 19. Sale Leaseback
- -----------------------
In April 1997 the Company sold its Portland, Oregon manufacturing facility in a
sale-leaseback transaction for approximately $4,600. The transaction was
accounted for as a financing and the capitalized lease obligations of
approximately $4,600 were recorded as long term liabilities. In April 1998,
under the terms of the agreement, the Company provided a mortgage note to the
purchaser in the amount of $3,200 which was reported as a note receivable at
September 30, 1998. In December 1998, the Company exercised an option to
repurchase the building for $4,700, consisting of cash of $1,500 and the note
receivable of $3,200. Accordingly, the note receivable of $3,200 and the capital
lease obligation of $4,600 have been eliminated from the balance sheet at
September 30, 1999. The costs associated with the building repurchase are
reported in other expenses during the year ended September 30, 1999.
The Company borrowed $2,500 from its bank under amended term loans to finance
the repurchase transaction and for working capital purposes. Approximately
$1,222 of the additional financing was borrowed under an amendment to the
Company's existing Term Loan I which increased the Term Loan I balance to
$4,105. Term Loan I is payable in equal monthly installments of $60 with the
remaining balance of $3,150 due at maturity on July 1, 2001. Approximately
$1,278 of the additional financing was provided under an amended Term Loan II
payable in 18 equal monthly installments of $71, plus variable interest (8.5% at
September 30, 1999).
49
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Note 20. Quarterly Data (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
1999 (1) Quarter Quarter Quarter (2) Quarter (3) Annual
-------- ------------ ------------ ----------- ------------ ------------
Continuing operations:
Net sales $ 14,399 $ 16,257 $ 15,749 $ 15,017 $ 61,422
Cost of sales 9,700 11,396 11,366 14,841 47,303
------------ ------------ ----------- ------------ ------------
Gross margin $ 4,699 $ 4,861 $ 4,383 $ 176 $ 14,119
============ ============ =========== ============ ============
Operating expenses $ 2,375 $ 2,173 $ 7,798 $ 4,804 $ 17,150
============ ============ =========== ============ ============
Earnings (loss) from continuing operations $ 1,031 $ 1,477 $ (2,378) $ (4,058) $ (3,928)
Loss from discontinued operations - - - (5,611) (5,611)
============ ============ =========== ============ ============
Net earnings (loss) $ 1,031 $ 1,477 $ (2,378) $ (9,669) $ (9,539)
============ ============ =========== ============ ============
Earnings (loss) per common share from continuing
operations - basic $ 0.05 $ 0.07 $ (0.14) $ (0.22) $ (0.24)
(Loss) per common share from discontinued
operations - basic - - - (0.29) (0.30)
============ ============ =========== ============ ============
Earnings (loss) per common share - basic $ 0.05 $ 0.07 $ (0.14) $ (0.51) $ (0.54)
============ ============ =========== ============ ============
Earnings (loss) per common share from continuing
operations - diluted $ 0.05 $ 0.07 $ (0.14) $ (0.22) $ (0.24)
(Loss) per common share from discontinued
operations - diluted - - - (0.29) (0.30)
============ ============ =========== ============ ============
Earnings (loss) per common share - diluted $ 0.05 $ 0.07 $ (0.14) $ (0.51) $ (0.54)
============ ============ =========== ============ ============
First Second Third Fourth
1998 (5) (6) Quarter Quarter Quarter Quarter (4) Annual
------------ ------------ ------------ ----------- ------------ ------------
Continuing operations:
Net sales $ 12,698 $ 15,613 $ 14,767 $ 14,568 $ 57,646
Cost of sales 8,825 10,648 9,949 10,707 40,129
------------ ------------ ----------- ------------ ------------
Gross margin $ 3,873 $ 4,965 $ 4,818 $ 3,861 $ 17,517
============ ============ =========== ============ ============
Operating expenses $ 1,869 $ 2,303 $ 2,443 $ 1,911 $ 8,526
============ ============ =========== ============ ============
Earnings from continuing operations $ 851 $ 1,393 $ 1,465 $ 902 $ 4,611
Loss from discontinued operations (157) (306) (336) (3,500) (4,299)
============ ============ =========== ============ ============
Net earnings (loss) $ 694 $ 1,087 $ 1,129 $ (2,598) $ 312
============ ============ =========== ============ ============
Earnings per common share from continuing
operations - basic $ 0.05 $ 0.08 $ 0.08 $ 0.04 $ 0.24
(Loss) per common share from discontinued
operations - basic (0.01) (0.02) (0.02) (0.19) (0.24)
============ ============ =========== ============ ============
Earnings (loss) per common share - basic $ 0.04 $ 0.06 $ 0.06 $ (0.15) $ -
============ ============ =========== ============ ============
Earnings per common share from continuing
operations - diluted $ 0.05 $ 0.08 $ 0.07 $ 0.04 $ 0.23
(Loss) per common share from discontinued
operations - diluted (0.01) (0.02) (0.02) (0.19) (0.23)
============ ============ =========== ============ ============
Earnings (loss) per common share - diluted $ 0.04 $ 0.06 $ 0.05 $ (0.15) $ -
============ ============ =========== ============ ============
</TABLE>
50
<PAGE>
Notes to Consolidated Financial Statements
Years Ended September 30, 1999, 1998, and 1997
(Dollars in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
(1) Certain reclassifications have been made to the first three quarters for
the year ended September 30, 1999 from amounts previously reported.
(2) The third quarter of 1999 operating expenses includes a $5,278 loss from
the impairment of assets related to Kenco, our former automotive
accessories business unit, consisting of $4,655 for the impairment of
non-voting preferred stock and notes and accounts receivable and $623 for
the impairment of property.
(3) The fourth quarter of 1999 operating expenses includes $1,750 expense for
acquired in-process research and development and changes in estimated
amounts for warranty and inventory reserves based on fourth quarter events.
The fourth quarter of 1999 loss from discontinued operations includes an
additional loss for the Agricultural Equipment Segment which reflects
events and information which resulted in management's revised estimate of
the net realizable value of this segment.
(4) The fourth quarter of 1998 loss from discontinued operations includes the
effects of the Company's decision to dispose of its Agricultural Equipment
segment as of September 30, 1998 and an additional loss on the disposal of
its previously disposed of Automotive Accessories segment which represented
an adjustment to the estimated value of non-voting preferred stock that the
Company received in the sale and from additional liabilities related to the
sale.
(5) All quarters prior to the fourth quarter 1998 have been restated to reflect
the Agricultural Equipment segment as a discontinued operation.
(6) Earnings (loss) per share for all periods have been restated for the
provisions of SFAS 128.
Note 21. Related Parties
- ------------------------
In addition to related party transactions discussed elsewhere in the notes to
the consolidated financial statements, during the year ended September 30, 1999,
$157 was paid to an affiliated company, for website development and e-commerce
designs. The chairman of the Company is a controlling shareholder of the
affiliated company.
Note 22. Contingencies
- ----------------------
The Company and its subsidiaries are involved in various lawsuits incidental to
their businesses. It is the opinion of management that the ultimate outcome of
these actions will not have a material effect on the Company's financial
position or results of operations.
The Company has identified certain contaminants in the soil and groundwater of a
manufacturing facility located in an industrial area, which the Company
believes, was disposed of on the property by a previous property owner. The
Company's environmental consulting firm has conducted tests to determine the
levels of contaminants. The Company has been advised by counsel that the
contamination is not a reportable condition under current statutes. In the event
that remediation were required in the future, the Company would seek
indemnification from the prior property owner under the terms of the asset
purchase agreement. The prior property owner has advised the Company that it
would dispute any liability for remediation costs. The Company believes it can
enforce available claims against the prior property owner for any costs of
investigation and remediation.
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Controls, Inc.:
We have audited the accompanying consolidated balance sheets of Williams
Controls, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, comprehensive income (loss),
shareholders' equity, and cash flows for each of the two years in the period
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Williams Controls,
Inc. and subsidiaries as of September 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Portland, Oregon,
December 29, 1999
52
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the accompanying consolidated statements of operations,
comprehensive income (loss), shareholders' equity and cash flows of Williams
Controls, Inc. and subsidiaries for the year ended September 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Williams Controls, Inc. and subsidiaries for the year ended September 30, 1997,
in conformity with generally accepted accounting principles.
/s/ Horwath Gelfond Hochstadt Pangburn & Co.
- ------------------------------------------------
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 18, 1997
53
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On July 29, 1998, the company filed a report on Form 8-K announcing a change in
accounting firms from Horwath Gelfond Hochstadt Pangburn & Co. to Arthur
Andersen LLP.
Part III
--------
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference from the Company's 1999 Proxy Statement.
Item 11. Executive Compensation
Incorporated by reference from the Company's 1999 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from the Company's 1999 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference from the Company's 1999 Proxy Statement.
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. See Exhibit Index on page 60 of this Form 10-K.
2. See Index to Financial Statements in Item 8 of this Form 10-K.
3. See Index to Schedules on page 56 of this Form 10-K.
4. Reports on Form 8-K.
On Form 8-K dated August 13, 1999, under "Item 2. Acquisition or Disposition of
Assets" the Company announced the acquisition of the ProActive Pedals Division
of Active Tools and Manufacturing Co., Inc.
On Form 8-KA dated October 12, 1999, under "Item 7. Financial Statements and
Exhibits" the Company amended its 8-K dated August 13, 1999 to include (a)
financial statements of the business acquired (ProActive Pedals) and (b)
Proforma financial information.
54
<PAGE>
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
Date: December 29, 1999 By: /s/ Thomas W. Itin
------------------------------
Thomas W. Itin, Chairman,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: December 29, 1999 By: /s/ Thomas W. Itin
------------------------------
Thomas W. Itin,
Principal Executive
Officer, Chairman, President,
Chief Executive Officer and
Director
Date: December 29, 1999 By: /s/ Gerard A. Herlihy
------------------------------
Gerard A. Herlihy
Chief Financial and
Administrative Officer
Date: December 29, 1999 By: /s/ Kim L. Childs
------------------------------
Kim L. Childs
Principal Accounting Officer
Date: December 29, 1999 By: /s/ Anthony B. Cashen
------------------------------
Anthony B. Cashen, Director
Date: December 29, 1999 By:
------------------------------
H. Samuel Greenawalt, Director
Date: December 29, 1999 By: /s/ Timothy Itin
------------------------------
Timothy Itin, Director
Date: December 29, 1999 By: /s/ Charles G. McClure
------------------------------
Charles G. McClure, Director
55
<PAGE>
Williams Controls, Inc.
Index to Schedules
Page
----
Report of Independent Public Accountants 57
Independent Auditors' Report 58
Schedule II Valuation and Qualifying Accounts 59
All other schedules are omitted because they are not required, not applicable or
the required information is given in the Consolidated Financial Statements.
56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Williams Controls, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements, as of and for the years ended September 30, 1999 and 1998,
included in Williams Controls, Inc. and subsidiaries' Form 10-K, and have issued
our report thereon dated December 29, 1999. Our audit was made for the purpose
of forming an opinion on those statements taken as a whole. The schedule listed
in the index to item 14 of this Form 10-K is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Portland, Oregon,
December 29, 1999
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Williams Controls, Inc.
Portland, Oregon
We have audited the 1997 consolidated financial statements of Williams Controls,
Inc. and subsidiaries, referred to in our report dated December 18, 1997 which
is included under Item 8 in this Form 10-K. In connection with our audit of
these financial statements, we audited the 1997 financial statement schedule,
listed under Item 14 of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information stated
therein, when considered in relation to the financial statements taken as a
whole.
/s/ Horwath Gelfond Hochstadt Pangburn & Co.
--------------------------------------------
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 18, 1997
58
<PAGE>
Williams Controls, Inc.
Valuation and Qualifying Accounts
Schedule II
(Dollars in thousands)
Beginning Ending
Description balance balance
----------- --------- -------
For Year Ended September 30, 1999
Total reserves for doubtful accounts
and obsolete inventory $ 569 $ 1,066
====== =======
For Year Ended September 30, 1998
Total reserves for doubtful accounts
and obsolete inventory $ 855 $ 569
====== =======
For Year Ended September 30, 1997
Total reserves for doubtful accounts
and obsolete inventory $1,064 $ 855
====== =======
NOTE: Valuation and qualifying accounts were not individually significant; and,
therefore, additions and deductions information has not been provided in this
schedule.
59
<PAGE>
Williams Controls, Inc.
Exhibit Index
Exhibit
Number Description
------- -----------
3.1 Certificate of Incorporation of the Registrant as
amended. (Incorporated by reference to Exhibit 3.1 to
the Registrants' annual report on form 10-K for the
fiscal year ended September 30, 1995 (the "1995 form
10-K"))
3.2 By-Laws of the Registrant. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement
on Form S-18, Registration No. 33- 30601-S, as filed
with the Commission on August 18, 1989 (the "1989 Form
S-18"))
4.1 Specimen Unit Certificate (including Specimen
Certificate for shares of Common Stock and Specimen
Certificate for the Warrants). (Incorporated by
reference to Exhibits 1.1 and 1.2 to the Registrant's
Registration Statement on Form 8-A, Commission File No.
0-18083, filed with the Commission on November 1, 1989)
4.2 Form of Placement Agent's Warrant Agreement
(Incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3,
Registration No. 333-59397 as filed with the Commission
on July 20, 1998)
10.1(a) Indemnification Agreement for Thomas W. Itin
("Itin Indemnification Agreement").
(Incorporated by reference to Exhibit 10.9 to the 1989
Form S-18)
10.1(b) Amendment No. 1 to Itin Indemnification Agreement.
(Incorporated by reference to Exhibit 10.1(b) to the
Registrant's Annual Report on form 10-K for the Fiscal
Year Ended September 30, 1993 (the "1993 Form-10K"))
10.1(c ) Form of Indemnification Agreement for H. Samuel
Greenawalt and Timothy Itin. (Incorporated by reference
to Exhibit 10.1(c) to the Registrant's 1993 Form 10-K)
10.2(a) Credit Agreement dated July 11, 1997 among Registrant
and its subsidiaries and Ajay Sports, Inc. ("Ajay") and
its subsidiaries, all as borrowers, and Wells Fargo
Bank, National Association, as lender (the "Credit
Agreement"). (Incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for
the period ended June 30, 1997 (the "June 1997 Form
10-Q"))
10.2(b) Promissory Notes under the Credit Agreement:
(a) Revolving Credit Loans Promissory Note
(b) Term Loan I Promissory Note
(c) Term Loan II Promissory Note
(d) Real Estate Loan Promissory Note
(All incorporated by reference to Exhibit 10.2 to the
Registrant's June 1997 Form 10-Q)
(e) Term Loan III Promissory Note (Filed Herewith)
60
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Exhibit
Number Description
------- -----------
10.2(c) Mortgage and Security Agreement between Aptek Williams,
Inc. and Wells Fargo Bank. (Incorporated by reference to
Exhibit 10.3 to the Registrant's June 1997 Form 10-Q)
10.2(d) Patent Assignment and Security Agreements for:
(a) Williams Controls Industries, Inc.
(b) Hardee Williams, Inc.
(c) Aptek Williams, Inc.
(All incorporated by reference to Exhibit 10.4 to the
Registrant's June 1997 Form 10-Q)
10.2(e) Trademark Security Agreements for:
(a) Agrotec Williams, Inc.
(b) Hardee Williams, Inc.
(All incorporated by reference to Exhibit 10.5 to the
Registrant's June 1997 Form 10-Q)
10.2(f) Continuing Unconditional Guaranty of Thomas W. Itin in
favor of Wells Fargo Bank. (Incorporated by reference
to Exhibit 10.6 to the June 1997 Form 10-Q)
10.2(g) First Amendment to Credit Agreement dated June 30, 1998
(Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K, Date of report
June 30, 1998)
10.2(h) Replacement Term Loan I Promissory Note, dated June 30,
1998 made by Registrant payable to Wells Fargo Bank
(Incorporated by reference to Exhibit 10.2 to the
Registrant's June 30, 1998 Form 8-K)
10.3(a) Intercreditor Agreement dated July 11, 1997 among
Registrant and subsidiaries, Ajay Sports, Inc. and
subsidiaries, United States National Bank of Oregon ("US
Bank"), Thomas W. Itin and Wells Fargo Bank, National
Association. (Incorporated by reference to Exhibit 10.7
to the Registrant's June 1997 Form 10-Q)
10.3(b) Consent, Reaffirmation and Release Agreement with US
Bank. (Incorporated by reference to Exhibit 10.8 to the
Registrant's June 1997 Form 10-Q)
10.3(c) Promissory Note of Ajay for $2,340,000 to US Bank.
(Incorporated by reference to Exhibit 10.9 to the
Registrant's June 1997 Form 10-Q)
10.3(d) Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing by Aptek Williams, Inc. in favor of US
Bank. (Incorporated by reference to Exhibit 10.10 to
the Registrant's June 1997 Form 10-Q)
10.3(e) Guaranty to US Bank. (Incorporated by reference to
Exhibit 10.11 to the Registrant's June 1997 Form 10-Q)
10.4(a) The Company's 1995 Stock Option Plan for Non-Employee
Directors. (Incorporated by reference to Exhibit 10.3
to the Registrant's Quarterly Report on Form 10-Q for
the period ended March 31, 1995 (the "March 1995 Form
10-Q"))
10.4(b) The Registrant's 1993 Stock Option Plan as amended to
date (Filed Herewith)
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<PAGE>
Exhibit
Number Description
------- -----------
10.5 Williams/Ajay Loan and Joint Venture Implementation
Agreement dated May 6, 1994, as amended by letter
agreement dated April 3, 1995. (Incorporated by
reference to Exhibit 10.4 to the Registrant's March 1995
Form 10-Q)
10.6(a) Guaranty dated as of October 2, 1995 by Thomas W. Itin
to the Registrant (the "Itin Guaranty"). (Incorporated
by reference to Exhibit 10.9 to the Registrant's 1995
Form 10-K)
10.6(b) Amendment One to the Itin Guaranty. (Incorporated by
reference to Exhibit 10.7(b) to the Registrant's Annual
Report on Form 10-K for the period ended September 30,
1997 (the "1997 Form 10-K"))
10.7 Security Agreement between Ajay and its subsidiaries,
as debtors, and the Registrant and its subsidiaries, as
secured parties. (Incorporated by reference to Exhibit
10.8 to the 1997 Form 10-K)
10.8 Agreement, dated June 30, 1998, by and among the
Registrant and Ajay Sports, Inc. and its subsidiaries
(Incorporated by reference to Exhibit 10.3 to the
Registrant's June 30, 1998 Form 8-K)
10.9 Asset Purchase Agreement and related Exhibits between
Kenco Williams, Inc. and Kenco Products, Inc.
(Incorporated by reference to exhibit 10.1 to the
Registrant's current report on Form 8-K, date of report
March 16, 1998)
10.10(a) Asset Purchase Agreement, dated July 28, 1999, by and
between Active Tool & Manufacturing Co., Inc., and the
Registrant and its subsidiary, ProActive Acquisition
Corporation (Filed Herewith)
10.10(b) Patent License Agreement, dated July 28, 1999, by and
between Edmond B. Cicotte and the Registrant and its
subsidiary, ProActive Acquisition Corporation
(Filed Herewith)
21.1 List of Subsidiaries. See Item 1 in this report
23.1 Consent of Horwath Gelfond Hochstadt Pangburn & Co.
(Filed Herewith)
23.2 Consent of Arthur Andersen LLP (Filed Herewith)
27.1 Financial Data Schedule (Filed Herewith)
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<PAGE>
Exhibit 10.10(a)
ASSET PURCHASE AGREEMENT
by and between
ACTIVE TOOL & MANUFACTURING CO., INC.,
PROACTIVE ACQUISITION CORPORATION
and
WILLIAMS CONTROLS, INC.
Dated July 28, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASE OF ACQUIRED ASSETS .............................................AND ASSUMPTION OF LIABILITIES 1
1.1 The Transaction...............................................................................1
1.2 Acquired Assets...............................................................................1
1.3 Assumed Liabilities...........................................................................3
1.4 Purchase Price................................................................................4
1.5 Payment of Purchase Price.....................................................................4
1.6 Allocation....................................................................................4
ARTICLE II CLOSING................................................................................................4
2.1 Closing Date..................................................................................4
2.2 Deliveries at the Closing.....................................................................4
2.3 Third Party Consents..........................................................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER...........................................................5
3.1 Organization..................................................................................5
3.2 Authority and Enforceability..................................................................5
3.3 No Conflict or Violation......................................................................5
3.4 Title.........................................................................................6
3.5 Intellectual Property.........................................................................6
3.6 No Tax Liens; No Waiver.......................................................................8
3.7 Compliance With Laws..........................................................................9
3.8 Litigation or Proceedings.....................................................................9
3.9 Third-Party Consents..........................................................................9
3.10 Warranties....................................................................................9
3.11 Environmental Matters.........................................................................9
3.12 Other Purchasers.............................................................................10
3.13 Assumed Contracts............................................................................10
3.14 Employee Relations...........................................................................11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER...........................................................11
4.1 Organization.................................................................................11
4.2 Authority and Enforceability.................................................................11
4.3 No Conflict or Violation.....................................................................11
4.4 Condition of Purchased Assets................................................................12
4.5 Nonreliance..................................................................................12
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Page
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ARTICLE V COVENANTS.............................................................................................12
5.1 Conduct of Business..........................................................................12
5.2 Consents.....................................................................................12
5.3 Efforts of the Parties.......................................................................12
5.4 Parties'Access to Records After Closing......................................................12
5.5 Disposal of Records..........................................................................13
5.6 Further Assurances...........................................................................13
5.7 Cooperation in Litigation....................................................................13
5.8 Press Releases...............................................................................13
5.9 Other Tax Payments...........................................................................14
5.10 Financing....................................................................................14
5.11 Product Liability Insurance..................................................................14
5.12 The Buyer's Obligation with Respect to the Seller's Employees................................14
ARTICLE VI CONDITIONS TO CLOSING.................................................................................15
6.1 Conditions to Obligations of the Buyer.......................................................15
6.2 Conditions to Obligations of the Seller......................................................16
ARTICLE VII INDEMNIFICATION.............................................................................................17
7.1 Definitions..................................................................................17
7.2 Indemnification from the Seller..............................................................17
7.3 Indemnification from the Buyer...............................................................18
7.4 Calculation of Losses........................................................................19
7.5 Termination of Indemnification...............................................................20
7.6 Procedures Relating to Indemnification for Third Party Claims................................20
7.7 Other Claims.................................................................................22
7.8 Adjustment to the Purchase Price.............................................................22
7.9 Express Limitation on Liability of Shareholders..............................................22
ARTICLE VIII TERMINATION...............................................................................................22
8.1 Termination..................................................................................22
8.2 Effect of Termination........................................................................23
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Page
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ARTICLE IX MISCELLANEOUS.........................................................................................23
9.1 Exhibits and Schedules.......................................................................23
9.2 Amendment....................................................................................23
9.3 Extension; Waiver............................................................................23
9.4 Entire Agreement; No Third Party Beneficiaries; Permitted Assigns............................24
9.5 Governing Law; Venue.........................................................................24
9.6 Certain Definitions..........................................................................24
9.7 Notices......................................................................................25
9.8 Counterparts; Headings.......................................................................26
9.9 Expenses.....................................................................................26
9.10 Successors and Assigns.......................................................................26
9.11 Confidentiality..............................................................................26
</TABLE>
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of July 28,
1999, by and between Active Tool & Manufacturing Co., Inc., a Michigan
corporation (the "Seller"), ProActive Acquisition Corporation, a Michigan
corporation (the "Buyer") and Williams Controls, Inc., a Delaware corporation
("Parent"), solely with respect to certain provisions of this Agreement. The
Seller, Parent and the Buyer are referred to from time to time in this Agreement
as the "Parties."
BACKGROUND
A. The Seller, through its ProActive Pedals division, is and has been
engaged in the development, design, engineering, production, marketing, and
sales of adjustable pedal systems, including modular versions of such systems,
electro-mechanical systems that allow brake, accelerator and, if required,
clutch pedals of a vehicle to be adjusted in unison (forward or backward)
relative to the position of the driver, including supplemental components for
such systems (collectively "Pedal Systems" or the "Business").
B. The Seller desires to sell and the Buyer desires to purchase all of
Seller's assets which are used exclusively in the Business, subject to the
Buyer's assumption of certain liabilities of the Business, and Parent's guaranty
of certain of Buyer's obligations under this Agreement, upon the terms and
subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Parties agree as follows.
AGREEMENT
ARTICLE I
PURCHASE OF ACQUIRED ASSETS AND
ASSUMPTION OF LIABILITIES
1.1 The Transaction. Upon the terms and subject to the conditions of
this Agreement, the Seller agrees to sell, assign, transfer, convey, and
deliver, or cause to be sold, assigned, transferred, conveyed and delivered, to
the Buyer and the Buyer agrees to purchase, at the Closing (as defined in
Section 2.1), the Acquired Assets as provided in Section 1.2, the Buyer agrees
to assume the Assumed Liabilities as provided in Section 1.3 and the Parent
agrees to execute the Guaranty Agreement in the form attached as Schedule 1.1
(the "Guaranty Agreement").
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1.2 Acquired Assets. Upon the terms and subject to the conditions of
this Agreement, the Seller shall execute and deliver to the Buyer on the Closing
Date (as defined in Section 2.1) a bill of sale in a form reasonably acceptable
to each of the Parties (the "Bill of Sale") pursuant to which the Seller shall
sell, assign, transfer, convey, and deliver the Acquired Assets to the Buyer
free and clear of all Liens (as defined in Section 9.6), other than Permitted
Encumbrances (as defined in Section 3.5). The term "Acquired Assets" means all
of the assets of the Seller used exclusively in the Business, including the
following:
(a) all fixed assets and inventory located on the premises of
7464/7472 Nineteen Mile Road, Sterling Heights, Michigan, including the property
of the Seller listed on Schedule 1.2(a);
(b) all tooling of the Seller relating to the Business;
(c) all right, title and interest of the Seller in, to and
under all contracts, agreements, leases, purchase orders, customer orders and
work orders listed on Schedule 1.2(b) (the "Assumed Contracts");
(d) all Intellectual Property, as defined below, relating to
the Business, goodwill associated therewith, licenses and sublicenses granted
and obtained with respect thereto, and rights thereunder, remedies against
infringements thereof, and rights to the protection of interests therein under
the laws of all jurisdictions;
(e) accounts, notes and other receivables of the Business;
(f) claims, deposits, prepayments, refunds, causes of action,
choses in action, rights of recovery, rights of set off and rights of recoupment
(including any such item relating to the payment of taxes) relating to the
Business;
(g) all right, title and interest of the Seller in and to the
name "ProActive Pedals" and variations thereof;
(h) to the extent legally assignable, all right, title and
interest of the Seller in, to and under all franchises, licenses, permits,
orders, certificates, approvals, and other governmental authorizations which are
necessary to own, lease or operate the Acquired Assets (the "Licenses and
Permits");
(i) all customer lists, supplier lists, trade secrets,
engineering data and proprietary information of the Seller relating to the
Business; and
(j) all books and records of the Seller, including, but not
limited to, financial and accounting records, shipping records, sale and
purchase correspondence and files relating to the Business.
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For purposes of this Agreement, "Intellectual Property" means (i) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuances,
continuations-in-part, revisions, extensions, and reexaminations thereof; (ii)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and all applications, registrations and renewals in
connection therewith; (iii) all copyrightable works, all copyrights, and all
applications, registrations and renewals in connection therewith; (iv) all mask
works and all applications, registrations and renewals in connection therewith;
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, pricing and cost information and business and marketing plans
and proposals); (vi) all computer software (including data and related
documentation); and (vii) all copies and tangible embodiments thereof (in
whatever form or medium).
1.3 Assumed Liabilities. (a) Upon the terms and subject to the
conditions of this Agreement, the Buyer shall execute and deliver to the Seller
on the Closing Date an agreement in a form reasonably acceptable to each of the
Parties (the "Assumption Agreement") pursuant to which Buyer shall assume and
agree to pay, perform, and discharge when due and on a timely basis, the
following obligations and liabilities of the Seller (collectively, the "Assumed
Liabilities"):
(i) all obligations and liabilities of the Seller
under the Assumed Contracts;
(ii) all outstanding trade payables, accrued
liabilities and other unpaid debts and liabilities of the
Seller relating exclusively to the Business, as reflected on the financial
statements for the Business and other liabilities of the Seller relating
exclusively to the Business which are incurred in the ordinary course of
operations after the date of such financial statements, other than intercompany
payables or any liabilities of the Business due to the Seller or any affiliate
of the Seller, other than those assumed by the Buyer under Section 1.3(a)(i),
(iii) or (iv);
(iii) all service and warranty obligations and
liabilities arising out of or related to the sale of Pedal Systems designed,
manufactured or sold by the Seller on or prior to the Closing Date and any
litigation arising out of or related to such obligations and liabilities,
including any obligations or liabilities arising out of or related to any
alleged defect or imperfection in any Pedal Systems designed, manufactured or
sold by the Seller ("Product Liability"), provided the Seller had no knowledge
of the foregoing as of the Closing Date; and
(iv) all liabilities for infringement by the Seller,
if any, of third party owned Intellectual Property arising out of or relating to
the Business on or prior to the Closing Date, provided the Seller had no
knowledge of the foregoing as of the Closing Date, and, provided further, that
notwithstanding the preceding clause, the Buyer shall be liable for all
liabilities for infringement, if any, by the Seller of Lemelson patents referred
to in Schedule 3.6(b).
(b) The Buyer shall not assume or agree to pay (i) Seller's
obligations under the Confidential Settlement Agreement and Release of All
Claims dated December 5, 1997 between Comcorp Technologies, Inc. f/k/a Brecom
Corporation, a Michigan corporation, and DeCouper Industries, Inc., a Michigan
corporation, Edmond B. Cicotte, an individual, and Seller; or (ii) any taxes of
any nature arising out of or due to the operations of the Business prior to the
Closing.
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<PAGE>
(c) Except as specifically provided in Section 1.3, the Buyer
shall not assume any other liabilities of Seller.
1.4 Purchase Price. The purchase price for the Acquired Assets shall be
an amount equal to Five Million Seven Hundred Fifty Thousand Dollars
($5,750,000).
1.5 Payment of Purchase Price. The Buyer and the Parent shall pay to
the Seller the Purchase Price by wire transfer of immediately available federal
funds to such account(s) as the Seller shall designate.
1.6 Allocation. The Parties acknowledge that the allocation of the
Purchase Price and Assumed Liabilities to the Acquired Assets and Assumed
Liabilities (the "Allocation") shall be determined as provided in Schedule 1.6.
The Parties agree (a) to complete within 60 days after the Closing, Internal
Revenue Service Form 8594 based upon such Schedule, (b) to report for tax
reporting purposes the transactions contemplated by this Agreement consistently
with the allocation set forth in such Schedule and (c) to take no position in
any examination, claim for refund, or contest of any adjustment to any return
that is inconsistent with the allocation set forth in such Schedule. The Parties
shall report (including with respect to the filing of Form 8594 to the Internal
Revenue Service) the sale and purchase of the Acquired Assets for all income tax
purposes in a manner consistent with such Allocation and shall not, in
connection with the filing of such return, make any Allocation of the Purchase
Price and Assumed Liabilities which is contrary to the Allocation. The Parties
agree to consult with one another with respect to any tax audit, controversy or
litigation relating to the Allocation.
ARTICLE II
CLOSING
2.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Dykema Gossett
PLLC, 400 Renaissance Center, Detroit, Michigan 48243 at 10:00 a.m., local time,
on or before July 28, 1999, or at such other location, time or date as may be
agreed upon by the Parties (the "Closing Date").
2.2 Deliveries at the Closing. At the Closing:
(a) the Seller shall deliver to the Buyer (i) the various
agreements, certificates, and other documents and instruments referred to in
Section 6.1, and (ii) such other documents as the Buyer or its counsel may
reasonably request to demonstrate satisfaction of the conditions and compliance
with the agreements set forth in this Agreement;
(b) the Buyer and Parent shall deliver to the Seller the
payment of the Purchase Price as provided in Section 1.4 on July 29, 1999, and
the Buyer shall deliver to the Seller the various other agreements,
certificates, and other documents and instruments referred to in Section 6.2,
4
<PAGE>
and such other documents as the Seller or its counsel may reasonably request to
demonstrate satisfaction of the conditions and compliance with the agreements
set forth in this Agreement; and
(c) the Parent shall deliver to the Seller the Guaranty
Agreement.
2.3 Third Party Consents. To the extent that the Seller's rights under
any agreement, contract, commitment, lease, license, permit or other asset to be
assigned to the Buyer under this Agreement may not be assigned without the
consent of another person which has not been obtained (a) this Agreement shall
not constitute an agreement to assign the same if an attempted assignment would
constitute a breach thereof or be unlawful, and (b) the Seller shall use its
commercially reasonable efforts to obtain any such required consent(s) as
promptly as possible. If any such consent is not obtained or if any attempted
assignment would be ineffective or would impair the Buyer's rights under the
asset in question so that the Buyer would not in effect acquire the benefit of
all such rights, the Seller, to the maximum extent permitted by law and the
asset, shall act after the Closing as the Buyer's agent in order to obtain for
the Buyer the benefits thereunder and shall cooperate, to the maximum extent
permitted by law and the asset, with the Buyer in any other reasonable
arrangement designed to provide such benefits to the Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer as follows:
3.1 Organization. The Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the state of its incorporation.
The Seller has all requisite corporate power and authority to own, lease, and
operate the Acquired Assets and to operate the Business as and where now being
conducted.
3.2 Authority and Enforceability. The Seller has all requisite power
and authority to enter into this Agreement and to carry out the transactions
contemplated by this Agreement. The execution, delivery, and performance of this
Agreement and the other agreements and documents to be executed and delivered by
the Seller pursuant to the provisions of this Agreement (the "Seller Documents")
have been duly authorized by all necessary corporate action on the part of the
Seller. This Agreement and the Seller Documents have been duly executed and
delivered by the Seller and constitute the legal, valid, and binding obligation
of the Seller, enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and general equitable principles.
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3.3 No Conflict or Violation. Except as set forth in Schedule 3.10, the
execution, delivery, and performance of this Agreement and the Seller Documents,
the consummation by the Seller of the transactions contemplated hereby and
thereby, and the compliance with the terms of this Agreement and thereof do not
(a) violate any provision of the Articles of Incorporation, Bylaws, other
organizational documents or any resolutions adopted by the Board of Directors or
the shareholders of the Seller, (b) violate, or result in a breach of or
constitute a default in any material respect under, any term, condition, or
provision of any contract, agreement, purchase order, work order, warranty, or
undertaking (whether oral or written) to which Seller is a party or by which
Seller is bound (assuming receipt of necessary consents), or (c) violate any
law, regulation, order, judgment, or decree of any court or governmental body or
authority to which, to the knowledge of the Seller, the Business or the Acquired
Assets is subject.
3.4 Financial Statements. The Seller has provided to the Buyer the
following financial statements for the Business: balance sheet as of June 30,
1999 and income statements for the year ended December 31, 1998 and the five
months ended June 30, 1999 (collectively, the "Business Financial Statements").
The Business Financial Statements are derived from the books and records of the
Business and reflect in all material respects the financial transactions of the
Business for the periods covered by the Business Financial Statements, except
that the Business Financial Statements do not contain any charge for corporate
overhead.
3.5 Title. The Seller has good and marketable title to all of the
Acquired Assets, free and clear of all Liens of any nature whatsoever, except
(a) as set forth on Schedule 3.5, which Liens shall be released at or prior to
Closing, (b) Liens for current taxes, assessments or governmental charges not
yet due and delinquent, and (c) Liens of mechanics, materialmen, laborers,
warehousemen, carriers, and other similar common law or statutory liens arising
in the ordinary course of business which are not yet due and payable or, if due
and payable, have been adequately bonded or are being contested in good faith
(collectively, the "Permitted Encumbrances").
3.6 Intellectual Property
(a) To the knowledge of the Seller, the Business owns or has
the right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of its business as presently
conducted and as presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Business immediately prior to the Closing will be
owned or available for use by the Buyer on no less favorable terms and
conditions immediately subsequent to the Closing except to the extent the Buyer
has agreed to modify such terms and conditions and subject to Section 3.10 of
this Agreement. The Business has taken all necessary action to maintain and
protect each item of Intellectual Property that it owns or uses.
(b) To the knowledge of the Seller, the Business has not
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any Intellectual Property rights of third parties. None of the directors
and officers of the Business or the Seller (including employees with
responsibility for Intellectual Property matters) has ever received any charge,
complaint, claim, demand or notice alleging any such interference, infringement,
misappropriation or violation (including any claim that the Business must
license or refrain from using any Intellectual Property rights of any third
party except as listed in Schedule 3.6(b)). To the knowledge of the Seller and
its employees with responsibility for Intellectual Property matters, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Business.
6
<PAGE>
(c) Schedule 3.6(c) identifies each patent or registration
which has been issued to the Business, or invention disclosures prepared by the
Seller, if any, with respect to any of its Intellectual Property, identifies
each pending patent application or application for registration which the
Business has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Business or
the Seller has granted to any third party with respect to any of the Business'
Intellectual Property (together with any exceptions). The Seller has delivered
to the Buyer correct and complete copies of all such patents, registrations,
applications, licenses, agreements and permission (as amended to date) and has
made available to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each such
item. Schedule 3.6(c) also identifies each trade name or unregistered trademark
used by the Business. With respect to each item of Intellectual Property
required to be identified on Schedule 3.6(c):
(i) The Business possesses all right, title and
interest in and to the item, free and clear
of any Lien, license or restriction;
(ii) The item is not subject to any outstanding
injunction, judgment, order, decree, ruling
or charge;
(iii) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim or
demand is pending or to the knowledge of the
Seller and its employees with responsibility
for Intellectual Property matters is
threatened which challenges the legality,
validity, enforceability, use or ownership
of the item; and
(iv) Except as identified on Schedule 3.6(c),
neither the Business nor the Seller has ever
agreed to indemnify any person for or
against any interference, infringement,
misappropriation or other conflict with
respect to the item.
(d) Schedule 3.6(d) identifies each item of Intellectual
Property that any third party owns and that the Business uses pursuant to
license, sublicense, agreement or permission and which is material to the
Business as currently conducted (excluding packaged commercially available
software available to the public through retail dealers which have been licensed
to the Seller pursuant to end-user licensees). The Seller has delivered to the
Buyer complete and correct copies of all such licenses, sublicenses, agreements,
and permission (as amended to date). With respect to each of the foregoing items
of Intellectual Property required to be identified on Schedule 3.6(d):
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(i) The license, sublicense, agreement or
permission covering the item is legal,
valid, binding, enforceable, and in full
force and effect;
(ii) The license, sublicense, agreement or
permission will continue to be legal, valid,
binding, enforceable, and in full force and
effect on identical terms following the
consummation of the transactions
contemplated hereby subject to Section 3.10
of this Agreement;
(iii) No party to the license, sublicense,
agreement or permission is in breach or
default, and no event has occurred which
with notice or lapse of time would
constitute a breach or default or permit
termination, modification or acceleration
thereunder;
(iv) To the knowledge of the Seller, no party to
the license, sublicense, agreement or
permission has repudiated any provision
thereof;
(v) With respect to each sublicense, the
representations and warranties set forth in
subparagraphs (i) through (iv) above are
true and correct with respect to the
underlying license;
(vi) The underlying item of Intellectual Property
is not subject to any outstanding
injunction, judgment, order, decree, ruling
or charge;
(vii) No action, suit, proceeding, hearing,
investigation, charge, complaint, claim or
demand is pending or to the knowledge of the
Seller and its employees with responsibility
for Intellectual Property matters is
threatened which challenges the legality,
validity or enforceability of the underlying
item of Intellectual Property; and
(viii) Neither the Business nor the Seller has
granted any sublicense or similar right with
respect to the license, sublicense,
agreement or permission.
(e) To the knowledge of the Seller and its employees with
responsibility for Intellectual Property matters, the Business will not
interfere with, infringe upon, misappropriate, or otherwise come into conflict
with, any Intellectual Property rights of third parties as a result of the
continued operation of its business as presently conducted and as presently
proposed to be conducted.
3.7 No Tax Liens; No Waiver
(a) None of the Acquired Assets are subject to any lien in
favor of the United States pursuant to the Internal Revenue Code of 1986, as
amended (the "IRC") for nonpayment of federal taxes, or any lien in favor of any
state under any comparable provision of state law, under which transferee
liability might be imposed upon Buyer as purchaser under the IRC or any
comparable provision of state or local law, except for ad-valorem taxes which
are not yet due and payable.
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(b) Except as provided on Schedule 3.7, Seller is not in
default under, nor has it failed to pay, any tax liability to any federal, state
or local authority, and no audit or other review by any such authority is
pending, or, to the knowledge of Seller, contemplated with respect to the
Business or the Acquired Assets for any period of operation prior to the Closing
Date.
3.8 Compliance With Laws. Except as set forth on Schedule 3.8, the
Seller is not in violation nor has it violated any applicable order, judgment,
injunction, award or decree relating to the Business. To the knowledge of the
Seller, except as disclosed on Schedule 3.8, the Seller has not violated nor is
it in violation of any federal, state, local or foreign law, ordinance or
regulation or any other requirement of any governmental or regulatory body,
court or arbitrator applicable to the Business.
3.9 Litigation or Proceedings. Except as set forth on Schedule 3.9,
there is no litigation, arbitration or proceeding pending or, to the knowledge
of the Seller, threatened against or affecting the Business or the Acquired
Assets, at law or in equity, by or before any court, arbitrator or governmental
body or authority that could reasonably be expected to have a Material Adverse
Effect (as defined in Section 9.6. Except as set forth on Schedule 3.9, there
are presently no outstanding judgments, decrees or orders of any court or any
governmental body or authority against or affecting the Business or the Acquired
Assets.
3.10 Third-Party Consents. Except as set forth on Schedule 3.10, no
consent, authorization or approval of, and no filing with, any third parties to
any Assumed Contract or any governmental authority is required for the
execution, delivery, and performance of this Agreement and the Seller Documents
by the Seller and the consummation of the transactions contemplated hereby and
thereby.
3.11 Warranties. Schedule 3.11 sets forth true and complete copies of
the form of all warranties issued by the Seller relating to the Business that
are still in effect. There are no outstanding unresolved claims which have been
asserted against Seller under such warranties, nor are there, to the knowledge
of the Seller, any outstanding unresolved claims which have been threatened
against Seller under such warranties, which could reasonably be expected to have
a Material Adverse Effect (as defined in Section 9.6).
3.12 Product Liability. There are no outstanding unresolved Product
Liability claims which have been asserted against the Seller relating to Pedal
Systems sold by the Seller, nor are there, to the knowledge of Seller, any
outstanding unresolved Product Liability claims which have been threatened
against Seller relating to Pedal Systems sold by the Seller, which could
reasonably be expected to have a Material Adverse Effect.
3.13 Environmental Matters. Except as disclosed on Schedule 3.13, to
the knowledge of Seller:
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(a) There has been no generation, production, refining,
processing, manufacturing, use, storage, disposal, treatment, shipment or
receipt of a Hazardous Material, as defined below, at or from the Business or
relating to the operation of the Business in violation of or in a manner that
could give rise to liability under Environmental Laws, as defined below.
(b) The operations of the Business are in compliance and have
been in compliance with all applicable Environmental Laws, except for such
noncompliance which would not interfere with continued operation of the Business
or impair its fair saleable value.
(c) The Seller has received no notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with Environmental Laws with regard to the
Business from any Person, nor does Seller or have knowledge or reason to believe
that any such notice will be received from or is being threatened by any Person.
(d) No judicial proceedings, governmental administrative
actions, investigations or internal or non-public agency proceedings relating at
the Business are pending or threatened, under any Environmental Law, to which
Seller is or will be named as a party, nor are there any consent decrees, or
other decrees, consent orders, agreements, administrative orders or other
orders, judicial or administrative requirements outstanding under any
Environmental Law with respect to the Business.
For purposes of this Agreement, (i) "Hazardous Materials" means any
substance (a) the presence of which at, on, over, beneath, in or upon any real
or personal property, building, substance, container of any nature or
description, subsurface strata, ambient air or ambient water (including surface
and groundwater) requires investigation, removal or remediation under any
Environmental Law or common law, (b) which is defined as a "hazardous
substance," "hazardous material," "hazardous waste," "pollutant" or
"contaminant" under any Environmental Law, and/or (c) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is regulated by any governmental authority under any
Environmental Law, (d) the presence of which causes or threatens to cause a
nuisance upon real property or to adjacent properties or poses or threatens to
pose a hazard to the environment, and/or to the health or safety of persons on
or about any real property, and/or (e) which contains urea-formaldehyde,
polychlorinated biphenyls, asbestos or asbestos containing materials, radon,
petroleum or petroleum products; and (ii) "Environmental Law or Laws" means any
and all federal, state, local or municipal laws, rules, orders, regulations,
statutes, treaties, ordinances, codes, decrees, or requirements of any
governmental authority regulating, relating to or imposing liability or
standards of conduct concerning environmental protection, health or safety
matters, including all requirements pertaining to reporting, licensing,
permitting, investigation, removal or remediation of emissions, discharges,
releases, or threatened releases of Hazardous Materials, chemical substances,
pollutants or contaminants or relating to the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials, chemical substances, pollutants or
contaminants, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance
Control Act ("TSCA"), the Resource Conservation and Recovery Act ("RCRA"), the
Clean Air Act ("CAA") and the Clean Water Act ("CWA"), all as are in effect and
may have been amended as of the date of this Agreement.
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3.14 Other Purchasers. No other Person has any right, claim or interest
in or to the Business or the Acquired Assets, including by reason of prior
negotiation, letter of intent or agreement. The transactions contemplated by
this Agreement will not give rise to any claim or cause of action for
interference with any right, claim, interest or agreement of any other Person.
3.15 Assumed Contracts. All of the contracts, leases and other
agreements which constitute a part of the Assumed Contracts are valid and
binding upon Seller in accordance with their terms, and Seller has not received
any notice of default under, or with respect to, any such contracts, leases or
other agreements nor, to Seller's knowledge, is it in default under , or with
respect to, any of the foregoing. Purchase order O6131025, dated November 17,
1995, issued to Seller by DaimlerChrysler Corporation ("Chrysler") with respect
to Pedal Systems for the Dodge Viper (the "Viper PO") is valid and binding upon
the Seller in accordance with its terms and the Seller has not received any
notice of default under, or with respect to, such purchase order nor, to
Seller's knowledge, is it in default under, or with respect to, the Viper P.O.
The Seller has no reason to believe or knowledge of any reason that Chrysler
will not fulfill its obligations under the Viper PO.
3.16 Employee Relations. Seller is not a party to a collective
bargaining agreement with respect to the Business, and there have been no
organization efforts by any trade unions within the last five years with respect
to the employees of the Business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization. The Buyer is a Michigan corporation duly organized,
validly existing, and in good standing under the laws of the state of its
incorporation. The Buyer has all requisite corporate power and authority to own,
lease, and operate its properties and assets and to carry out its business as
and where now being conducted.
4.2 Authority and Enforceability. The Buyer has all requisite power and
authority to enter into this Agreement and to carry out the transactions
contemplated by this Agreement. The execution, delivery, and performance of this
Agreement and the other agreements and documents to be delivered by the Buyer
pursuant to the provisions of this Agreement (the "Buyer Documents") have been
duly authorized by all necessary corporate action on the part of the Buyer, as
appropriate. This Agreement and the Buyer Documents have been duly executed and
delivered by the Buyer and constitute the legal, valid, and binding obligation
of the Buyer enforceable in accordance with their respective terms, except as
the enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and general equitable principles.
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4.3 No Conflict or Violation. The execution, delivery, and performance
of this Agreement and the Buyer Documents, the consummation by the Buyer of the
transactions contemplated hereby and thereby, and the compliance with the terms
of this Agreement and the Buyer Documents by the Buyer does not (a) violate any
provision of the Articles of Incorporation or Bylaws of the Buyer, (b) violate
or result in a breach of or constitute a default in any material respect under,
any term, condition, or provision of any material agreement, contract, mortgage
or lease to which Buyer or Parent is a party or by which any of its assets may
be bound or affected, (c) violate any law, regulation, order, judgment or decree
of any court or governmental body or authority to which the Buyer or any of its
assets, to the knowledge of the Buyer, is subject, except where the violation,
breach or default would not reasonably be expected to have a material adverse
effect on the Buyer.
4.4 Condition of Purchased Assets. THE BUYER, ON BEHALF OF ITSELF AND
ANY AFFILIATES OR RELATED PARTIES, UNDERSTANDS AND AGREES THAT THE ACQUIRED
ASSETS ARE SOLD, ASSIGNED, LEASED, TRANSFERRED AND CONVEYED TO BUYER IN AN "AS
IS" CONDITION ON A "WHERE IS" BASIS WITHOUT ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED,
EXCEPT AS OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT.
4.5 Nonreliance. In connection with its decision to purchase the
Acquired Assets, the Buyer, on behalf of itself and its affiliates and related
parties, acknowledges that (a) it is a sophisticated party with such knowledge
and experience in business matters that it appreciates the merits and risks of
purchasing the Acquired Assets and consummating the transactions contemplated by
this Agreement, (b) it has conducted its own due diligence investigation and has
had the opportunity to ask questions and receive answers with respect to any
information it deems material to an investment decision, and (c) the Seller is
making no representation or warranty with respect to any forward looking
financial projections, budgets or other financial data relating to the Acquired
Assets or the Business prepared or furnished by or on behalf of the Seller.
ARTICLE V
COVENANTS
5.1 Conduct of Business. Except as otherwise contemplated by this
Agreement, during the period from the date of this Agreement and continuing
until the Closing Date, the Seller agrees to operate the Business in the
ordinary course and consistent with past practices.
5.2 Consents. The Seller shall use its commercially reasonable efforts
to obtain, prior to the Closing Date, the consents specified on Schedule 5.2.
5.3 Efforts of the Parties. Subject to the terms and conditions of this
Agreement, each of the Parties shall use its commercially reasonably efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary or desirable to consummate the transactions contemplated by
this Agreement.
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5.4 Parties' Access to Records After Closing. Except as provided in
Schedule 5.4 of this Agreement, the Parties agree to preserve until the seventh
anniversary of the Closing Date, all records in their possession relating to any
of the Acquired Assets, Assumed Liabilities or the Business. The Buyer has been
informed that the Seller shall include the operation of the Business in its
federal and state income tax returns for all periods prior to the Closing Date
and for such purposes the Buyer shall permit authorized employees of the Seller
or the shareholders of the Seller as of the date of this Agreement or their
representatives and successors to gather and prepare such information as the
Seller or the shareholders of the Seller as of the date of this Agreement may
reasonably require for preparing such tax returns. In the event that either
Party or the shareholders of the Seller as of the date of this Agreement needs
access to records in the possession of the other Party relating to any of the
Acquired Assets, Assumed Liabilities, or the Business for purposes of complying
with or exercising their rights under this Agreement, preparing income tax
returns, for complying with any audit request, subpoena or other investigative
demand by any governmental authority or for bringing, responding to or defending
any claim, lawsuit, arbitration or other legal proceeding, each Party shall
allow representatives of the other Party or of the shareholders of the Seller as
of the date of this Agreement access to such records, including reasonable use
of office space and facilities, during regular business hours at such Party's
place of business for the sole purpose of obtaining information for use as
provided for in this section, and shall permit such other Party or the
shareholders of the Seller as of the date of this Agreement to make extracts and
copies thereof as may be necessary or convenient.
5.5 Disposal of Records. Either Party may at any time and from time to
time subsequent to the Closing Date and prior to the seventh anniversary of the
Closing Date, dispose of the records in their possession relating to the
Business by giving sixty days' prior notice of such disposal to the other Party
and, in the case of the Seller, Thomas S. Vaughn of Dykema Gossett PLLC, 400
Renaissance Center, Detroit, Michigan 48243-1668, as representative of the
shareholders of the Seller; provided, however, that if such records are
pertinent to any dispute, claim, litigation, governmental investigation or the
determination of any federal, state or local tax liability of the other Party or
the shareholders of the Seller as of the date of this Agreement, the other Party
or shareholders of the Seller as of the date of this Agreement shall have the
right, by giving written notice to the Party desiring to dispose of records
within such sixty-day period, to require said Party to retain such records until
such time as the other Party or the shareholders of the Seller as of the date of
this Agreement may specify or provide such records to the other Party or to
Thomas S. Vaughn on behalf of the shareholders of the Seller as of the date of
this Agreement.
5.6 Further Assurances. Each Party shall cooperate with the other and
execute and deliver to the other Party such other instruments and documents and
take such other actions as may be reasonably requested from time to time by the
other Party as necessary to carry out, evidence, and confirm the intended
purposes of this Agreement. The Parties agree to use good faith efforts to
cooperate with each other to facilitate the identification of the records of the
Seller that relate to the Business.
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5.7 Cooperation in Litigation. In the event that, after the Closing
Date, either Party shall require the participation of officers and employees
employed by another Party to aid in the defense or settlement of litigation or
claims by third parties, and so long as there exists no conflict of interest
between the Parties, each Party shall use its commercially reasonable efforts to
make such officers and employees available to participate in such defense,
provided that the Party requiring the participation of such officers or
employees shall pay all reasonable out-of-pocket costs, charges, and expenses
arising from such participation.
5.8 Press Releases. Except as required by applicable law, neither Party
shall give notice to third parties or otherwise make any public statement or
releases concerning this Agreement or the transactions contemplated by this
Agreement except for such written information as shall have been approved in
writing as to form and content by the other Party, which approval shall not be
unreasonably withheld; provided, however, that such approval shall not be
required in connection with the communication by the Seller with its employees,
customers or suppliers concerning the Agreement.
5.9 Other Tax Payments. The Buyer shall pay when due all transfer,
sales, use, stamp, recording, and other similar taxes and fees, including any
penalties and interest, arising out of or in connection with the transfers of
the Acquired Assets to Buyer (the "Transfer Taxes"). The Buyer, at its expense,
shall file all necessary documentation and returns with respect to any Transfer
Taxes.
5.10 Financing. On the Closing Date the Buyer shall have, sufficient
funds available to it to pay the Purchase Price to the Seller and to otherwise
satisfy all of its respective obligations under this Agreement.
5.11 Product Liability Insurance. The Buyer shall provide the Seller,
within thirty days after the Closing Date, with a certificate naming the Seller
as an insured under Buyer's existing product liability insurance policy, to the
extent of Product Liability claims arising out of or related to occurrences
after the Closing Date in connection with products designed, manufactured or
sold by the Seller on or prior to the Closing Date, under insurance policies
maintained by the Buyer which provide coverage for Product Liability claims in
the aggregate annual coverage of $1,000,000, providing coverage for claims made
during the period beginning on the Closing Date and ending on the third
anniversary of the Closing Date. The Buyer shall obtain insurance policies which
provide for such coverage in an amount and with such terms as are usual and
customary for companies of the Buyer's size in the automotive supplier industry.
5.12 The Buyer's Obligation with Respect to the Seller's Employees.
(a) Schedule 5.12 lists all employees of the Business, their
current employment compensation (including bonus, if any), accrued vacation, and
other amounts, if any, payable to each employee. Immediately prior to the
Closing, Seller will terminate all employees of the Business (the "Terminated
Employees") and Buyer will hire such employees of the Business as it determines
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in its sole discretion, provided that within ninety days of the Closing Date,
the Buyer shall not cause an employment loss, as defined in the Workers
Adjustment and Retaining Notification Act, as amended (the "WARN Act"), in
sufficient numbers such that the notice requirement of the WARN Act is
applicable. The Parties agree to cooperate in jointly notifying the employees of
the Business of the termination of their employment by the Seller and, where
applicable, the offer of employment by the Buyer. All liabilities of the
Business relating to Terminated Employees, including all compensation and other
benefits due to the Terminated Employees at the time of termination, will be
retained by the Seller, except as set forth in (b) below and except for
liabilities to the employees of the Business hired by the Buyer set forth in the
Assumed Contracts, including, but not limited to, a certain Management Change in
Control Agreement, dated as of December 1, 1998, with Raymond Peters.
(b) In addition, the Parties agree as follows with respect to
employee benefit matters relating to the employees of the Business hired by the
Buyer:
(i) Buyer's Benefit Programs. All of Buyer's
employee benefit plans, programs and arrangements in which the employees of the
Business hired by the Buyer become eligible to participate shall, to the extent
permitted by law, credit such employees with a period of service beginning on
their original hire date with the Seller for purposes of eligibility, vesting,
and any other purpose required by law.
(ii) Health Insurance. The Buyer's group health
plan (the "Buyer's Health Plan") shall not contain any exclusion or limitation
with respect to any pre-existing condition of any employee of the Business hired
by the Buyer or their dependents. In addition, with respect to any employee of
the Business hired by the Buyer (or the dependent of any employee of the
Business) with an ongoing medical condition first arising prior to Closing for
which treatment shall continue after the Closing, the Buyer's Health Plan shall
bear the expense of such treatment to the extent occurring on or after the
Closing Date. Any amount paid by employees of the Business hired by the Buyer or
their dependents for the current plan year for medical expenses that are treated
as a deductible or co-insurance payment under the Seller's health insurance plan
shall reduce the amount of any deductible or co-insurance payment required to be
paid for a similar period under the Buyer's Health Plan. Buyer will not be
responsible for any salaried or hourly health and life insurance obligations
incurred prior to the Closing for any Terminated Employees, nor for payment of
claims to insureds, or payment of any premiums for coverage prior to the Closing
Date.
(iii) Vacation. The vacation program adopted by the
Buyer for the employees of the Business hired by the Buyer shall recognize past
employment with the Seller for purposes of computing vacation benefits. The
Buyer shall assume and be responsible for, and shall give full credit for, all
vacation benefits of employees of the Business hired by the Buyer accrued but
not taken as of the Closing Date. The Seller shall have no responsibility or
liability for any vacation benefits of employees of the Business hired by the
Buyer on or after the Closing Date, including vacation benefits accrued prior to
the Closing Date.
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(c) The Seller shall comply with all provisions of Sections 601 through
608 of ERISA, relating to "COBRA" continuation coverage, to be provided under
the Seller's group health plans to employees of the Business.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Obligations of the Buyer. The obligations of the
Buyer and Parent to consummate the transactions contemplated by this Agreement
are subject, at the discretion of the Buyer and Parent, to the satisfaction at
or prior to the Closing of each of the following conditions.
(a) Representations and Warranties; Covenants. The
representations and warranties of the Seller contained in this Agreement shall
be true and correct in all material respects at and as of the Closing as if such
representations and warranties were made at the Closing, and the Seller shall
have performed in all material respects all agreements and covenants required by
this Agreement to be performed by it prior to or at the Closing Date; provided,
however, that a breach of any representation or warranty shall not constitute a
failure of the condition contained in this section if such breach, either alone
or in conjunction with all other breaches, has not had and would not reasonably
be expected to have a Material Adverse Effect. On the Closing Date, the Seller
shall deliver to the Buyer a certificate signed by an officer of the Seller to
the foregoing effect.
(b) Consents. The Seller shall have obtained all consents and
approvals specified on Schedule 5.2 as required to have been obtained by the
Seller, other than the consent of DaimlerChrysler Corporation referred to in
Schedule 5.2.
(c) Assignment. The Buyer shall have received the Bill of Sale
executed by the Seller.
(d) Absence of Litigation. No action, suit or proceeding shall
have been instituted or threatened seeking to enjoin or restrain, or which would
have a Material Adverse Effect on, the transactions contemplated by this
Agreement, including any order, injunction, decree or judgment of any court or
governmental authority.
(e) Execution of Cicotte License Agreement. A License
Agreement directed to Pedal Systems between the Buyer and Edmond B. Cicotte must
be executed prior to or contemporaneous with execution of this Agreement.
6.2 Conditions to Obligations of the Seller. The obligations of the
Seller to consummate the transactions contemplated by this Agreement are
subject, in the discretion of the Seller, to the satisfaction at or prior to the
Closing Date of each of the following conditions.
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(a) Representations and Warranties; Covenants. All
representations and warranties of the Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the Closing as if such
representations and warranties were made at and as of the Closing, and the Buyer
shall have performed in all material respects all agreements and covenants
required by this Agreement to be performed by it prior to or at the Closing
Date; provided, however, that a breach of any representation or warranty shall
not constitute a failure of the condition contained in this section if such
breach, either alone or in conjunction with all other breaches, has not had and
would not reasonably be expected to have a material adverse effect on the Buyer.
On the Closing Date, the Buyer shall deliver to the Seller a certificate signed
by an officer of the Buyer to the foregoing effect.
(b) Assumption Agreement and Guaranty Agreement. The Seller
shall have received the Assumption Agreement executed by the Buyer and the
Guaranty Agreement executed by the Parent.
(c) Absence of Litigation. No action, suit or proceeding shall
have been instituted or threatened seeking to enjoin or retrain, or which would
have a Material Adverse Effect on, the transactions contemplated by this
Agreement, including any order, injunction, decree or judgment of any court or
governmental authority.
(d) Payment of Purchase Price. The Buyer shall have agreed to
pay the Purchase Price.
(e) Consents. The Buyer shall have obtained all consents and
approvals specified on Schedule 5.2 as required to have been obtained by the
Buyer.
(f) Execution of Cicotte Termination Agreement. A Termination
Agreement in the form attached hereto as Schedule 6.2(f) terminating the
agreement of November 1, 1993 between the Buyer and Edmond B. Cicotte must be
executed prior to or contemporaneous with execution of this Agreement.
ARTICLE VII
INDEMNIFICATION
7.1 Definitions. For purposes of this Article, the following terms
shall have the meanings set forth below.
"Agents" shall mean agents, contractors, representatives, and
employees.
"Buyer Indemnified Party" or the "Buyer Indemnified Parties"
shall mean the Buyer and its officers, directors, employees, shareholders,
agents, and representatives.
"Loss" shall mean any loss, liability, claim, damage or
expense (including reasonable legal fees and expenses).
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"Seller Indemnified Party" or the "Seller Indemnified Parties"
shall mean the shareholders of the Seller as of the Closing Date.
"Third Party Claim" shall mean a claim or demand made by any
third person against an indemnified party for which indemnification is required
to be made under Sections 7.2 or 7.3.
7.2 Indemnification from the Seller
(a) Subject to the limitations and qualifications set forth
below, the Seller shall indemnify the Buyer Indemnified Parties against and hold
them harmless from any Loss suffered or incurred by any such Buyer Indemnified
Party to the extent arising from:
(i) the non-fulfillment by the Seller of any
agreement or covenant of the Seller set forth in this Agreement or the Bill of
Sale;
(ii) any inaccuracy of any representation or
warranty of the Seller set forth in this Agreement as of the Closing Date as
though made as of such time, except to the extent such representations and
warranties expressly refer to an earlier date;
provided, however, that, if the Closing occurs (1) there shall be no liability
under this Section 7.2 for any Loss pursuant to this clause (a) unless the
aggregate of all such Losses, but for this proviso, exceeds on a cumulative
basis an amount equal to $50,000, following which the Buyer Indemnified Parties
shall be entitled to indemnification with respect to such Losses in excess of
such amount, and (2) except as provided for in following sentence, the aggregate
liability of the Seller under this Section 7.2 for any and all Losses (except
for any Loss suffered as a result of the non-fulfillment by the Seller of its
obligations under Section 9.11) shall not under any circumstances exceed
$250,000 (the "Cap").
(b) Prior to the assertion of any claims for indemnification
under this Section 7.2, the Buyer Indemnified Party shall utilize all reasonable
efforts, consistent with normal practices and policies and good commercial
practice (and which shall in any event include, without limitation, seeking
recoveries under insurance policies), to mitigate such Losses. Recovery pursuant
to this Section 7.2 shall in no event include any special, indirect, incidental
or consequential damages whatsoever, including, but not limited to lost profits,
damage to reputation, lost business opportunities, mental or emotional distress,
interference with business operations or diminution of the value of the
property. No current or former director, officer, employee or shareholder of the
Seller shall have any liability to the Buyer Indemnified Parties under this
Agreement or otherwise in connection with the transactions contemplated by this
Agreement.
(c) The Buyer (i) acknowledges and agrees that, should the
Closing occur and except for any claims arising under Section 9.11, its sole and
exclusive remedy with respect to any and all claims relating to this Agreement,
the transactions contemplated by this Agreement, the Seller, and the Seller's
subsidiaries, assets, liabilities and businesses shall be under the
indemnification provisions set forth in this Article, and that such remedy shall
be exercised solely by means of the exercise of their rights and remedies under
this Article; provided, however, that the Buyer's right to sue for equitable
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relief shall not be limited by this subsection; and (ii) waives, from and after
the Closing, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action it may have arising under or based upon any
Federal, state, local or foreign statute, law, ordinance, rule or regulation or
otherwise (except under the indemnification provisions set forth in this
Article).
(d) The Parties acknowledges and agree that if the Buyer has
knowledge of an inaccuracy of any representation or warranty of the Seller
contained in this Agreement and proceed with the Closing, the Buyer shall be
deemed to have waived and released any claim for any Loss related thereto and it
and its successors, assigns and affiliates shall not be entitled to assert any
such claim thereunder, notwithstanding anything to the contrary contained in, or
in any certificate delivered under, this Agreement.
7.3 Indemnification from the Buyer.
(a) Subject to the limitations and qualifications set forth
below, the Buyer shall indemnify the Seller Indemnified Parties against and hold
them harmless from any Loss suffered or incurred by any such Seller Indemnified
Party to the extent arising from:
(i) the non-fulfillment by the Buyer of any
agreement or covenant of any of them under this Agreement or the Assumption
Agreement; and
(ii) any inaccuracy of any representation or
warranty of the Buyer contained in this Agreement as of the time of the Closing
as though made as of such time, except to the extent such representations and
warranties expressly refer to an earlier date.
(b) Prior to the assertion of any claims for indemnification
under this Section 7.3, the Seller Indemnified Party shall utilize all
reasonable efforts, consistent with normal practices and policies and good
commercial practice (and which shall in any event include, without limitation,
seeking recoveries under insurance policies), to mitigate such Losses. Recovery
pursuant to this Section 7.3 shall in no event include any special, indirect,
incidental or consequential damages whatsoever, including, but not limited to
lost profits, damage to reputation, lost business opportunities, mental or
emotional distress, interference with business operations or diminution of the
value of the property. No current or former director, officer, employee or
shareholder of the Buyer shall have any liability to the Seller Indemnified
Parties in connection with the transactions contemplated by this Agreement.
(c) By accepting the Purchase Price, the Seller Indemnified
Parties (i) acknowledge that, should the Closing occur, their sole and exclusive
remedy with respect to any and all claims relating to this Agreement, the
transactions contemplated by this Agreement, the Buyer and the Buyer's
subsidiaries, assets, liabilities and businesses shall be under the
indemnification provisions set forth in this Article; provided, however, that
the Seller's right to sue for equitable relief shall not be limited by this
subsection; and (ii) waive, from and after the Closing, to the fullest extent
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<PAGE>
permitted under applicable law, any and all rights, claims and causes of action
they may have arising under or based upon any Federal, state, local or foreign
statute, law, ordinance, rule or regulation or otherwise (except under the
indemnification provisions set forth in this Article).
7.4 Calculation of Losses.
(a) The amount of any Loss for which indemnification is
provided under this Article shall be net of any amounts recovered by the
indemnified party under insurance policies with respect to such Loss and shall
be (i) increased to take account of any net tax cost incurred by the indemnified
party arising from the receipt of indemnity payments hereunder (grossed up for
such increase), and (ii) reduced to take account of any net tax benefit realized
by the indemnified party arising from the incurrence or payment of any such
Loss.
(b) The indemnified party shall use its best efforts to seek
recoveries under insurance policies and, if a Seller Indemnified Party is the
indemnified party, shall reimburse the Buyer for any Loss indemnified by it
which is subsequently recovered by the indemnified party under any such
insurance.
(c) In computing the amount of any such tax cost or tax
benefit, the indemnified party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item arising from
the receipt of any indemnity payment hereunder or the incurrence or payment of
any indemnified Loss. The amount of such tax cost or tax benefit payable or
realizable in future tax periods shall be discounted to present value (utilizing
for this purpose a discount rate of 8%) for purposes of determining the amount
of increase or deduction.
7.5 Termination of Indemnification.
(a) The obligation of the Seller to indemnify, defend, and
hold harmless a Buyer Indemnified Party under Section 7.2(a) shall terminate at
5:00 p.m. (Detroit time) on the first anniversary of the Closing Date, except
for an obligation arising under Section 9.11 which shall terminate at 5:00 p.m.
(Detroit time) on the fifth anniversary of the Closing Date; provided, however,
that such obligations to indemnify, defend, and hold harmless shall not
terminate with respect to any item as to which the person to be indemnified or
the related party thereto shall have, before the expiration of the applicable
period, previously made a claim by delivering a notice of such claim (stating in
reasonable detail the basis and amount of such claim) to the Seller.
(b) The obligation of the Buyer to indemnify, defend, and hold
harmless a Seller Indemnified Party under Section 7.3 shall terminate at 5:00
p.m. (Detroit time) on the first anniversary of the Closing Date; provided,
however, that such obligations to indemnify, defend, and hold harmless shall not
terminate with respect to any item as to which the person to be indemnified or
the related party thereto shall have, before the expiration of the applicable
period, previously made a claim by delivering a notice of such claim (stating in
reasonable detail the basis and amount of such claim) to the Buyer.
Notwithstanding the foregoing, the Buyer's obligation to indemnify, defend and
hold harmless a Seller Indemnified Party under Section 7.3 with respect to the
Assumed Liabilities shall not terminate.
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7.6 Procedures Relating to Indemnification for Third Party Claims.
(a) In order for a party to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of or involving a
Third Party Claim, such indemnified party must notify (i) the Seller if the
Third Party Claim is one for which the Seller must give indemnification, or (ii)
the Buyer if the Third Party Claim is one for which the Buyer must give
indemnification, in writing, and in reasonable detail, of the Third Party Claim
within ten days after receipt by such indemnified party of written notice of the
Third Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided under this Agreement except to the
extent that the ability to defend such claim or demand shall have been
prejudiced as a result of such failure (except that party making indemnification
shall not be liable for any expenses incurred during the period prior to the
giving of such notice by the indemnified party if notice is not timely given).
Thereafter, the indemnified party shall deliver to the Seller or the Buyer, as
applicable, within ten days after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
(b) If a Third Party Claim is made against a Buyer Indemnified
Party, the Seller shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense or settlement thereof with counsel
selected by the Seller. If a Third Party Claim is made against a Seller
Indemnified Party, the Buyer shall be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the Buyer. Should the Seller or the Buyer, as the case may be, so
elect to assume the defense of the Third Party Claim, except as otherwise
provided below, the Seller shall not be liable to the Buyer Indemnified Party
for legal expenses subsequently incurred by a Buyer Indemnified Party in
connection with the defense thereof and the Buyer shall not be liable to a
Seller Indemnified Party for legal expenses subsequently incurred by the Seller
Indemnified Party in connection with the defense or settlement thereof. If the
Seller or the Buyer, as the case may be, assumes such defense or settlement, the
indemnified party shall have the right to participate in the defense thereof and
to employ counsel (not reasonably objected to by the party assuming the
defense), which shall be at its own expense, separate from the counsel employed
by the party assuming the defense, it being understood that the party assuming
the defense shall control such defense. In the event the Seller or the Buyer
fails to assume the defense of a Third Party Claim within thirty days after
receipt of the notice referred to in Section 7.6(a) for which the indemnified
parties are entitled to be indemnified as provided above, the indemnified party
may defend the Third Party Claim consistent with its obligations hereunder, at
the expense and for the account of (i) the Seller if the Third Party Claim is
one for which the Seller must give indemnification or (ii) the Buyer if the
Third Party Claim is one for which the Buyer must give indemnification, and
shall keep the party required to make indemnification fully informed regarding
the progress and status thereof, and, under the circumstances described in this
sentence, shall not settle, compromise or discharge such Third Party Claim
without the consent of such party.
(c) If the Seller or the Buyer, as the case may be, elects to
assume the defense of any Third Party Claim:
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(i) all of the applicable indemnified parties
shall cooperate with the party assuming the defense in the defense thereof. Such
cooperation shall include the retention and the provision, to the party assuming
the defense, of records and information which are reasonably relevant to such
Third Party Claim and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder;
(ii) the party assuming the defense shall keep the
applicable indemnified parties fully informed
regarding the progress and status thereof;
(iii) the indemnified parties shall not admit any
liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the prior written consent of the party
assuming the defense (which consent shall not be unreasonably withheld);
(iv) the party assuming the defense shall not settle,
compromise or discharge such Third Party Claim
without the prior written consent of the indemnified parties if such settlement,
compromise or discharge requires any of the indemnified parties to cease any
activity or to take any action (other than entering into an agreement setting
forth the terms of such settlement, compromise or discharge); and
(v) the indemnified parties from whom the defense was
assumed shall reimburse the party assuming the
defense for all legal fees and expenses reasonably incurred in defending against
such claim if it is subsequently determined that the Third Party Claim is a
claim for which indemnification is not required under Sections 7.2 or 7.3.
(d) All claims under Sections 7.2 or 7.3 other than Third
Party Claims shall be governed by Section 7.7.
7.7 Other Claims.
(a) In the event any indemnified party should have a claim
under Sections 7.2 or 7.3 that does not involve a Third Party Claim being
asserted against or sought to be collected from such indemnified party, the
indemnified party shall deliver written notice of such claim with reasonable
promptness and stating the nature and basis of the claim in reasonable detail to
(i) the Seller if the claim is one for which the Seller must give
indemnification or (ii) the Buyer if the claim is one for which the Buyer must
give indemnification.
(b) The failure by any indemnified party so to notify the
Seller or the Buyer, as the case may be, shall not relieve any liability under
Sections 7.2 or 7.3, except to the extent that the ability to defend such claim
or demand shall have been prejudiced as a result of such failure.
(c) If the Seller or the Buyer, as the case may be, disputes
the liability with respect to such claim, the Seller or the Buyer, as the case
may be, and the indemnified party shall proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute shall be resolved by litigation in an appropriate court of competent
jurisdiction.
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7.8 Adjustment to the Purchase Price. All indemnification payments made
under this Article shall be treated by all parties as an adjustment to the
Purchase Price.
7.9 Express Limitation on Liability of Shareholders. Notwithstanding
anything to the contrary in this Agreement, the shareholders of the Seller have
no obligations or liabilities of any kind under this Agreement.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
Closing:
(a) by mutual consent of the Parties;
(b) by Buyer or Seller if the Closing Date shall not have
occurred by July 29, 1999, provided that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose willful
failure to fulfill any obligation under this Agreement has been the cause of or
resulted in the failure of the Closing to occur on or before the Termination
Date;
(c) by Buyer or Seller if there has been a material breach of
any representation, warranty, covenant or agreement on the part of the other
Party set forth in this Agreement which is not curable or, if curable, not
cured, such that the conditions set forth in Section 6.1(a), in the case of a
material breach by Seller, and Section 6.2(a), in the case of a material breach
by Buyer, cannot be satisfied prior to the Termination Date; or
(d) by Buyer or Seller if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action, in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable (provided that the right to terminate
this Agreement under this Section 8.1(c) shall not be available to any party who
willfully has not complied with its obligations under this Agreement and such
non-compliance materially contributed to the issuance of such order, decree or
ruling on the taking of such action).
8.2 Effect of Termination. In the event of termination of this
Agreement by any Party, as provided above, this Agreement shall terminate
immediately and there shall be no liability on the part of any Party or its
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officers or directors, except for liabilities arising from a material breach by
a Party of any of its covenants or agreements set forth in this Agreement;
provided, however, that the obligations of the Parties set forth in Section 9.9
shall survive such termination.
ARTICLE IX
MISCELLANEOUS
9.1 Exhibits and Schedules. All Exhibits and Schedules referred to in
this Agreement are intended to be and hereby are specifically made a part of
this Agreement.
9.2 Amendment. This Agreement and the Schedules to this Agreement may
not be amended except by an instrument in writing signed on behalf of each
Party.
9.3 Extension; Waiver. At any time prior to the Closing Date, the
Parties may (a) extend the time for the performance of any of the obligations or
other acts of the other Party, (b) waive any inaccuracies in the representations
and warranties of the other Party contained in this Agreement or in any document
delivered pursuant to this Agreement, and (c) waive compliance by the other
Party with any of the agreements or conditions contained in this Agreement. Any
agreement on the part of a Party to any such extension or waiver shall be valid
if set forth in an instrument in writing signed on behalf of such Party.
9.4 Entire Agreement; No Third Party Beneficiaries; Permitted Assigns.
(a) This Agreement, together with the Schedules and other
agreements referred to in this Agreement constitutes the entire Agreement
between the Parties pertaining to the subject matter of this Agreement and
supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the Parties regarding
such subject matter.
(b) This Agreement, together with the Schedules and other
agreements referred to in this Agreement is for the sole benefit of the Parties
and their permitted assigns and nothing in this Agreement, expressed or implied,
shall give or be construed to give to any person or entity, other than the
Parties and such assigns, any legal or equitable rights under this Agreement.
Neither party may assign any of its rights or obligations under this Agreement
without the express written consent of the other party, except Seller may assign
its rights to receipt of the purchase price to Active AP, L.L.C.
9.5 Governing Law; Venue.
(a) This Agreement shall be governed by, construed,
interpreted, and the rights of the Parties determined in accordance with the
laws of the State of Michigan (regardless of the choice or conflicts of laws
principles of that jurisdiction).
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(b) Each of the parties irrevocably submits to the
jurisdiction of (a) the Macomb County, Michigan Circuit Court, and (b) the
United States District Court for the Eastern District of Michigan, for the
purposes of any suit, action or other proceeding arising out of this Agreement
or any transaction contemplated hereby. Each of the parties agrees to commence
any action, suit or proceeding relating hereto either in the United States
District Court for the Eastern District of Michigan or, if such suit, action or
other proceeding may not be brought in such court for jurisdictional reasons, in
the Macomb County, Michigan Circuit Court. Each of the parties further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth above shall be effective service of
process for any action, suit or proceeding in Michigan with respect to any
matters to which it has submitted to jurisdiction in this Section 9.5. Each of
the parties irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Macomb County, Michigan Circuit
Court, and (ii) the United States District Court for the Eastern District of
Michigan, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
9.6 Certain Definitions. For purposes of this Agreement:
"Lien" shall mean any pledge, lien (including, but not limited to, any
tax lien), security interest, mortgage, option or restriction on transfer
(including, but not limited to, any buy-sell agreement or right of first refusal
or offer).
"Material Adverse Effect" shall mean a loss, expense or cost which is
materially adverse to the Acquired Assets or the business, financial condition
or results of operations of the Business taken as a whole.
"Person" or "person" shall mean an individual or any corporation,
partnership, joint venture, association, limited liability company, trust,
unincorporated organization, or other legal entity or a government or
governmental entity.
"To the knowledge," or "known," and words of similar import shall mean
the actual knowledge of a person without independent investigation and, with
respect to the Seller, shall mean such knowledge of Fred Schoen, Glenn Miller or
Raymond Peters.
9.7 Notices. All notices and other communications under this Agreement
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail, postage prepaid, return receipt requested (such
mailed notice to be effective on the date such receipt is acknowledged) as
follows:
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If to the Buyer, addressed to:
ProActive Acquisition Corporation
14100 S.W. 72nd Avenue
Portland, OR 97224
Attention: Gerard H. Herlihy, Chief Financial Officer
with a copy to:
John W. Kellogg, Esq.
Friedlob Sanderson Raskin, Paulson & Tourtillott, LLC
1400 Glenarm Place, Third Floor
Denver, Colorado 80202
(303) 571-1400
If to the Parent, addressed to:
Williams Controls, Inc.
14100 S.W. 72nd Avenue
Portland, OR 97224
Attention: Gerard H. Herlihy, Chief Financial Officer
With a copy to:
John W. Kellogg, Esq.
Friedlob Sanderson Raskin, Paulson & Tourtillott, LLC
1400 Glenarm Place, Third Floor
Denver, Colorado 80202
If to the Seller, addressed to:
Active Tool & Manufacturing Co., Inc.
Engineering Centre
20600 E. Fourteen Mile Road
Roseville, Michigan 48066
Attn: President
With a copy to:
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243-1668
Attn: Thomas S. Vaughn, Esq.
or to such other place and with such other copies as either Party may designate
as to itself by written notice to the others.
26
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9.8 Counterparts; Headings. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
several Articles and Sections in this Agreement are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
9.9 Expenses. Regardless of whether the transactions contemplated by
this Agreement are consummated, each Party shall pay its or their own costs and
expenses, including investment banking, legal, accounting, consulting, and other
professional fees, incurred in connection with the negotiation, preparation,
investigation, and performance by such Party of this Agreement and the
transactions contemplated under this Agreement.
9.10 Successors and Assigns. This Agreement, and all rights and powers
granted by this Agreement, shall bind and inure to the benefit of the Parties
and their respective successors and assigns.
9.11 Confidentiality. For a period of five years from and after the
Closing Date, the Seller shall use the same degree of care, but no less than a
reasonable degree of care, to prevent the disclosure of the Intellectual
Property (collectively "Confidential Information") to any party, including any
affiliate of
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Seller, unless such affiliate agrees in writing to be bound by the provisions of
this Section 9.11 and such agreement is provided to Buyer, and shall not use
said Confidential Information for any purpose without the prior written consent
of the Buyer, which consent the Buyer may withhold in its sole discretion,
except as otherwise required by this Agreement. The term "Confidential
Information" does not include any information: (a) which is in the public domain
or hereafter comes into the public domain through no fault of Seller; (b) is
lawfully received by the Seller from a third party having the right to disclose
such information; (c) is independently developed by the Seller without breach of
this Section 9.11; or (d) after notifying the Buyer pursuant to the next
sentence, the disclosure of which is required by order or requirement of a
court, administrative agency or other governmental body. If Seller becomes (or
if it is reasonably likely that Seller shall become) legally compelled to
disclose any Confidential Information, immediate notice of such fact shall be
given to the Buyer so that any appropriate action may be taken by the Buyer.
The Parties have executed this Asset Purchase Agreement as of the date
first above written.
PROACTIVE ACQUISITION CORP.
By:________________________
Name:______________________
Title:_____________________
WILLIAMS CONTROLS, INC.,
SOLELY WITH RESPECT TO
SECTIONS 1.1, 1.5, 2.2(b)
AND 2.2(c)
By:________________________
Name:______________________
Title:_____________________
ACTIVE TOOL & MANUFACTURING
CO., INC.
By:________________________
Name:______________________
28
Exhibit 10.10(b)
PATENT LICENSE AGREEMENT
Effective as of the "Effective Date" referred to in Article VII hereof,
by and between Edmond B. Cicotte of 11086 Hedgeway, Utica, Michigan 48327, and
or assigns, hereinafter referred to as "LICENSOR", and Williams Controls, Inc.,
a Delaware Corporation, and Proactive Acquisition Corporation, a Michigan
Corporation, having a corporate office at 7001 Orchard Lake Road, Suite 424,
West Bloomfield, Michigan 48322 , collectively hereinafter referred to as
"LICENSEE".
WITNESSETH:
WHEREAS LICENSOR is now and has been engaged in developing certain
products embodying inventions or designs owned by LICENSOR and has available
technical information and know-how relating to the manufacture thereof; and
WHEREAS LICENSOR owns or controls or may hereinafter own certain
patents as identified in Schedule A appended hereto, relating to such products;
and
WHEREAS LICENSOR has in the past granted an exclusive technical
assistance and patent license agreement for the Licensed Patents defined herein
to Active Tool and Manufacturing Company (hereinafter ACTIVE) on November 1,
1993; and
WHEREAS ACTIVE seeks to make a sale of said exclusive license agreement
along with certain business assets related to Licensed Products defined
hereinafter; and
WHEREAS LICENSEE, as defined herein, has expressed an interest in
obtaining said exclusive license agreement but only subject to certain changes
as set forth herein; and
WHEREAS LICENSOR has agreed to act as a consultant and advisor to
LICENSEE on matters pertaining to the engineering, design, and manufacture of
automotive brake, clutch and/or accelerator pedals and related technology and
has this date entered into a written consulting agreement with LICENSEE in this
regard; and
WHEREAS LICENSEE desires to use LICENSOR technical information and
know-how and to acquire licenses with respect to current and/or future designs,
patents and applications for patents owned or developed by LICENSOR, including
those developed in conjunction with said consulting agreement, and LICENSOR is
willing to grant the licenses to LICENSEE;
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements hereinafter set forth, the parties hereto hereby covenant and
agree as follows:
ARTICLE I
General Definitions
As used herein, the following terms shall have the following meanings:
Section 1-A The term "Licensed Territory", as used herein, means all
the countries of the world.
<PAGE>
Section 1-B The term "Licensed Products", as used herein means all
products upon which a claim of any of the Licensed Patents reads and
equivalents, with Licensed Patents being defined hereinafter and set forth in
Schedule A hereof. Licensed Products include adjustable automotive brake, clutch
and/or accelerator pedals and parts therefor and associated adjustable
components as claimed in Licensed Patents. Supplemental components, such as a
wiring harness, electronic sensors, or an Electronic Control Unit are excluded
from "Licensed Products". If LICENSEE and LICENSOR are unable to agree on
whether an article sold by LICENSEE is a Licensed Products, then LICENSOR and
LICENSEE agree to submit the issue of arbitration in accord with Section 8-F of
this Agreement.
Section 1-C The term "Licensed Year", as used herein, means a period of
twelve (12) consecutive months commencing on November 1, 1998 or on any
anniversary of said date occurring during the life or term of this agreement.
Section 1-D The term "Technical Information", as used herein, means all
information including, but not limited to, data, know-how, patent applications,
and other assistance LICENSEE obtains from LICENSOR that relates to Licensed
Products.
Section 1-E The term "Licensed Patents", as used herein, means all
patents and applications for patents in the Licensed Territory which relate to
Licensed Products and which are now or hereafter owned by LICENSOR, and patents
or applications for patents owned by LICENSEE which, if practiced, would
infringe either literally or by equivalents any Licensed Patent owned by
LICENSOR, but excluding patents and applications for patents which are removed
by LICENSEE or which are not elected by LICENSEE or are removed by LICENSOR
under the appropriate provisions of this agreement. The term "Licensed Patents"
shall include all patents and applications for patents in the Licensed Territory
as set forth in Schedule A hereof.
Section 1-F The term "Affiliate" means any entity in which LICENSEE has
an ownership interest, LICENSEE's parent company, and any companies owned by
LICENSEE's parent company.
Section 1-G The terms "have made" and "having made" mean use by
LICENSEE of a third party to fabricate and/or assemble the Licensed Products.
Section 1-H The term "Confidential Information" as used herein means
all information a Receiving Party obtains from a Disclosing Party pertaining to
Licensed Products, the Licensed Patents, or the business of LICENSEE, which is
identified as Confidential Information by the Disclosing Party.
ARTICLE II
License Granted
Section 2-A LICENSOR grants and agrees to grant to LICENSEE:
(a) An exclusive right and license to use the Technical Information for
the purpose of making, having made, using and selling Licensed Products and
parts therefor in the Licensed Territory;
2
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(b) An exclusive non-transferable right and license to make, having
made, use and sell Licensed Products and parts therefor covered by any Licensed
Patent in the Licensed Territory.
Section 2-B No license, either express or implied, is granted by
LICENSOR to LICENSEE hereunder with respect to any patent or information except
as specifically stated above.
Section 2-C No license, either express or implied, is granted hereunder
to use as a trademark or otherwise any work of LICENSOR used as a designation of
origin or any other trademark or trade or product name of LICENSOR, or any word
or mark similar thereto.
Section 2-D LICENSEE may, at its option, indicate that Licensed
Products and parts therefor are made under license from LICENSOR by a suitable
legend, if the form of such legend and the extent of LICENSEE's use thereof have
received prior written approval from LICENSOR. LICENSOR may amend or revoke
prior approvals to use such legends at any time during the term of this
agreement, and all rights to use such legends shall terminate with this
agreement.
Section 2-E LICENSOR hereby grants the rights to sublicense Licensed
Products hereunder providing Sublicensee agrees in writing to comply with all of
the provisions of this License Agreement and further providing LICENSOR is given
timely notice of such sublicense arrangement and consents, in writing, to such
Sublicense. Such consent shall not be unreasonably withheld.
ARTICLE III
Patent Provision
Section 3-A Subject to any United States Government restrictions,
LICENSOR shall submit to LICENSEE, within one (1) month of the signing of this
agreement or within three (3) months after it is filed, for purposes of the
election as set forth below, a copy of each LICENSOR owned United States patent
application which is now pending or is hereafter filed by LICENSOR and which
relates to: (i) Licensed Products, or (ii) automotive brake, clutch, and/or
accelerator pedals, parts therefor and assemblies thereof.
Section 3-B LICENSEE shall, within ninety (90) days of receiving a
copy of a U.S. patent or U.S. patent application submitted under Section 3-A,
notify LICENSOR in writing of its election to include in Schedule A such U.S.
patent or U.S. patent application submitted under Section 3-A of this Agreement.
Upon notification of LICENSOR by LICENSEE of such election, such U.S. patent or
U.S. patent application shall automatically be included in Licensed Patents and
set forth in Schedule A hereof.
Section 3-C Where LICENSEE has made an election under Section 3-B to
include a Patent or Patent Application in Schedule A, LICENSEE shall further
notify LICENSOR not less than one hundred twenty (120) days prior to the first
anniversary date of the U.S. filing date of such application, which countries in
which LICENSEE elects to file a corresponding patent application. LICENSOR shall
file and prosecute such an application, at LICENSEE's expense, which, upon such
filing will be automatically included in Licensed Patents as defined in Section
1-E and set forth in Schedule A hereof. LICENSEE agrees to maintain a
Twenty-five Thousand Dollar ($25,000.00) trust account with LICENSOR to pay the
expenses associated with filing, prosecuting, and maintaining patent
applications and patents.
3
<PAGE>
Section 3-D LICENSEE shall submit to LICENSOR, within sixty (60) days
after it filed, a copy of each United States patent application owned by
LICENSEE which relates to Licensed Products. So long as the making, having made,
using, or selling articles embodying the invention that is covered by the claims
of such LICENSEE owned patent infringes literally or by equivalents any Licensed
Patent owned by LICENSOR, such LICENSEE owned patent will automatically be
included in Licensed Patents as defined in Section 1-E and set forth in Schedule
A hereof. Notwithstanding the foregoing however, LICENSOR shall have the right,
upon written notice to LICENSEE within sixty (60) after LICENSEE has submitted
its patent application LICENSOR, to exclude such application from Schedule A
hereof. This Agreement does not transfer any ownership interest in any LICENSEE
owned patent or patent application from LICENSEE to LICENSOR.
Section 3-E LICENSEE may remove any Licensed Patent from this agreement
by giving LICENSOR written notice of its desire to do so, removal of such
Licensed Patent to become effective ninety (90) days from the date of such
notice.
Section 3-F LICENSEE shall have no rights hereunder with respect to any
LICENSOR owned patent application or patent which it either (1) has failed to
elect, or (2) has removed from this agreement, in accordance with the provisions
of this Agreement. LICENSEE shall be deemed to have relinquished all rights
hereunder to make, have made, use or sell Licensed Products covered by a
LICENSOR owned patent application or patent in a particular country where such
LICENSOR owned patent application or patent has been non-elected or removed by
LICENSEE.
Section 3-G In the event that LICENSEE elects to include such patent
application or patent in Schedule A hereof, LICENSEE shall bear the reasonable
costs incurred in the filing, prosecution and maintenance of such patent
application and the patent issuing thereon in the Licensed Territory, including
the United States, and shall reimburse such party who files, prosecutes and
maintains the application or the patent issuing thereon. LICENSOR agrees to
consult with LICENSEE regarding continued prosecution of any pending patent
application. In the event that LICENSEE elects to remove any Licensed Patent
from this agreement as provided in Section 3-E or elects to no longer bear the
costs incident to the maintenance as provided in Section 3-K, LICENSEE shall
bear the ordinary and necessary costs incurred as provided in this section for
ninety (90) days from the date of such notice to LICENSOR.
Section 3-H LICENSEE shall place appropriate patent notices on all
Licensed Products which incorporate any invention covered by any Licensed
Patent.
Section 3-I Upon mutual written consent by LICENSOR and LICENSEE,
LICENSEE shall be entitled to commence infringement proceedings against third
parties who are engaged in activities infringing the Licensed Patents. Such
proceedings shall be promptly brought after such mutual written consent and be
vigorously and diligently prosecuted by LICENSEE in the Licensed Territory.
LICENSEE shall have the right to include LICENSOR as a party to such proceedings
where necessary for the conduct thereof. Subject to the limitation in the
following sentence concerning LICENSOR's attorney fees, all expenses including
attorney fees arising out of any mutually consented to infringement proceedings
initiated hereunder shall be borne by LICENSEE . Solely with respect to issues
where the interests of LICENSEE and LICENSOR are at a conflict in such
infringement litigation, LICENSOR may obtain independent counsel at LICENSEE's
expense, providing LICENSOR first seeks and obtains LICENSEE's written consent,
4
<PAGE>
which consent shall not be unreasonably withheld. LICENSOR shall render to
LICENSEE at sixty (60) day intervals during the period of such proceedings or
the preparation thereof an account of the expenses associated therewith.
LICENSEE shall have complete control over the conduct and settlement of such
infringement proceedings, providing legal counsel for LICENSEE timely consults
with legal counsel for LICENSOR regarding strategic or settlement decisions
during such proceedings. LICENSEE shall first obtain LICENSOR's written consent
to any settlement which includes any economic benefits or concessions granted
from the opposing party to LICENSEE coupled with an effective royalty rate equal
to what LICENSEE would be obligated to pay LICENSOR under Section 5-A(4) hereof
had LICENSEE rather than the opposing party made the opposing party's accused
infringing sales. Any settlement or damage award which may be collected shall be
first used to (1) reimburse LICENSEE and LICENSOR for the expenses incurred by
them with respect to such infringement proceedings, then (2) to satisfy the
royalty requirements as set forth in Article V, Section 5-A(4), then (3) to pay
LICENSEE the normal incremental profit it would have earned on the opposing
party's infringing sales had LICENSEE made such sales, and then (4) any balance
then remaining shall be divided equally between LICENSEE and LICENSOR.
"Incremental profit" shall be computed by subtracting from LICENSEE's average
selling price for comparable products only its direct material and labor costs.
In the event LICENSEE and LICENSOR do not consent within a reasonable
time, in writing, to initiate an infringement proceeding, the party who has
failed to receive consent from the other party shall have the option to initiate
and control such infringement proceedings. The lawsuit-initiating party shall
have the right to join the other party, if necessary, which other party shall
fully cooperate at no out-of-pocket expense to itself other than the cost of its
own attorney if it elects to retain one. Any award as a result of settlement
and/or disposition of such action shall be granted solely to the
lawsuit-initiating party.
Section 3-J LICENSOR represents that he is the true and sole inventor
of the LICENSOR owned Licensed Patents licensed hereunder. LICENSOR does not
make any representation to LICENSEE regarding the scope of enforceability of the
Licensed Patents, and does not warrant that any Licensed Products manufactured
or sold under this agreement will not infringe patents of others. LICENSEE
hereby acknowledges that at the advice of counsel for ACTIVE he has been
provided with certain disclosure relevant to a past ownership and/or
inventorship issue related to a prior consulting arrangement and associated
civil lawsuit filed in the Circuit Court for the County of Wayne, Michigan, Case
No. 95-501324-CK, and based upon such disclosure LICENSEE agrees to defend and
hold harmless LICENSOR with regard to any litigation concerning said prior
consulting arrangement related to inventorship and/or ownership of said Licensed
Patents. LICENSEE further agrees to consult LICENSOR regarding strategic
decisions concerning such litigation. In the event LICENSEE fails to defend
LICENSOR regarding such inventorship and/or ownership litigation this license
agreement shall be terminated forthwith. LICENSEE shall not have any settlement
thereof or other disposition effecting the validity or ownership of Licensed
Products without the written consent of LICENSOR.
Section 3-K LICENSEE may, at any time and from time to time during the
term of this agreement, give ninety (90) days notice, in writing, to the
LICENSOR that it no longer desires to bear the costs incident to the maintenance
of any one or more of the LICENSOR Owned Licensed Patents or patent applications
licensed, and upon expiration of such ninety (90) days, all rights of LICENSEE
in the invention or inventions claimed in such LICENSOR owned patent
applications or patents, shall terminate.
5
<PAGE>
Section 3-L In the event that LICENSEE shall have no rights hereunder
due to non-election under Section 3-B or 3-C, or elections under Section 3-E or
3-K of this Article, LICENSOR shall have all rights to prosecute and/or maintain
such LICENSOR owned patent applications and/or patent(s) on his own account.
ARTICLE IV
Technical Information
Section 4-A LICENSEE shall be entitled to receive data, know-how, and
other assistance as set forth with respect to any designs or models of Licensed
Products originated by LICENSOR.
Section 4-B LICENSOR will keep LICENSEE generally informed concerning
the origination by LICENSOR of new or improved standard designs or models of
Licensed Products. If LICENSEE requests in writing that any such design or model
be included in this Agreement, LICENSOR may at its option include it therein,
such inclusion to be effective as of the date of LICENSOR's written acceptance
of LICENSEE's request.
Section 4-C Any Confidential Information disclosed to the Receiving
Party by the Disclosing Party is supplied in confidence solely for the use of
the Receiving Party under this agreement and remains the property of the
Disclosing Party. The Receiving Party agrees: (a) not to use or permit use of
any Confidential Information except in accordance with this Agreement; (b) not
to disclose any Confidential Information to others; and (c) not to use or permit
use of any Confidential Information after termination of this agreement except
information which is in the public domain through no fault of the Receiving
Party
Section 4-D LICENSEE shall select an employee who shall act as its
technical correspondent in receiving data and know-how from LICENSOR, and in
making arrangements with LICENSOR for other assistance called for by this
agreement. LICENSEE shall promptly indicate to LICENSOR in writing the name of
its technical correspondent, but shall have the right at any time to substitute
another of its employees as technical correspondent by giving writing
notification of the change.
Section 4-E LICENSOR shall be responsible for providing information, to
the extent it is available in LICENSOR, in answer to reasonable technical
inquiries received from LICENSEE's technical correspondent relating to Licensed
Products and shall provide to the extent requested copies of pertinent technical
data theretofore documented by LICENSOR, including to the extent applicable
assembly and detail drawings, parts lists, test reports and other technical
reports, operation and maintenance manuals, written information relating to
manufacturing processes and apparatus, lists of ingredients and their
proportions in compositions of matter, and written information pertaining to
quality control.
Section 4-F Subject to any United States Government restrictions,
LICENSOR shall arrange for visits of LICENSEE's representatives, to the extent
they do not unduly interfere with the normal business of LICENSOR, at mutually
agreeable times and upon reasonable advance notice to the facilities of LICENSOR
for the purpose of obtaining assistance relating to the Licensed Products and
their manufacture.
6
<PAGE>
Section 4-G Visits by LICENSOR's representatives to LICENSEE's
factories and laboratories for the purpose of providing assistance shall be
subject to mutually acceptable arrangements as to their timing.
Section 4-H If approval by any government is required in order to
render this agreement fully effective, LICENSOR shall not be obligated to
furnish any Technical Information hereunder until such approval has been
obtained and evidence thereof has been supplied to LICENSOR. Currently, LICENSOR
is not aware of a requirement for any such government approval.
Section 4-I LICENSEE shall upon written request promptly reimburse
LICENSOR for any costs, including material costs, incurred by LICENSOR in
providing Technical Information to LICENSEE, providing LICENSOR obtains
LICENSEE's prior written approval of such costs.
Section 4-J LICENSOR will use its best efforts to provide LICENSEE with
accurate Technical Information, but LICENSOR does not make any warranty and
shall have no liability with respect to the Technical Information or the use
thereof; nor does LICENSOR assume any responsibility or make any warranty with
respect to Licensed Products, or parts thereof, manufactured, sold or used under
this agreement. LICENSEE shall defend and hold LICENSOR harmless from any
liability arising from Licensed Products or parts therefor, manufactured, sold
or used under this agreement.
Section 4-K Technical Information is supplied in confidence solely for
the use of LICENSEE under this agreement and remains the property of LICENSOR.
After termination of this agreement, LICENSEE shall, if LICENSOR requests in
writing, promptly return to LICENSOR, or its designee, all documented Technical
Information (including copies). LICENSEE agrees (a) not to use or permit use of
any Technical Information except in accordance with the licenses herein granted;
(b) not to disclose any Technical Information to others except to the extent
such disclosure is absolutely necessary to LICENSEE's operation under this
agreement and only then if such disclosure is subject to the same limitations on
the recipient as on LICENSEE; and (c) not to use or permit use of any Technical
Information after termination of this agreement except information which is in
the public domain through no fault of LICENSEE, or is independently developed by
LICENSEE without reference to the Technical Information. Notwithstanding
anything to the contrary in this agreement however, LICENSEE may, with written
notice to LICENSOR, disclose such Confidential and Technical Information on a
need to know basis to its customers if required to do so by a customer, where
such customer is not willing to enter into an agreement with LICENSEE respecting
the confidentiality of such information.
Section 4-L Promptly after the execution of this agreement, LICENSOR
shall consult with LICENSEE to transfer to LICENSEE any Technical Information
possessed by LICENSOR that relates to the Licensed Products. Thereafter,
LICENSOR shall provide LICENSEE with continuing technical assistance and
consulting services related to the Licensed Products. So long as this agreement
remains in effect, LICENSOR shall not with respect to the subject matter of the
Licensed Patents: (1) provide technical assistance or consulting services to any
third parties, or (2) compete with LICENSEE, either directly or indirectly
except concerning Licensed Product removed or not elected by LICENSEE as stated
in Section 3-G.
7
<PAGE>
ARTICLE V
Compensation
Section 5-A LINCENSEE shall pay to LICENSOR the following nonrefundable
amounts:
1. An initial down payment of Six Hundred Thousand Dollars
($600,000.00) payable upon execution of this agreement and an
agreement between LICENSEE and ACTIVE.
2. A Minimum Royalty of One Million One Hundred Forty Thousand
Dollars ($1,140,000.00) payable in twelve Annual Minimum
Royalty Payments of Ninety-five Thousand Dollars ($95,000) to
be paid within thirty (30) days of the beginning of each
Licensed Year beginning with the Licensed Year starting
November 1, 1998 and the twelfth Payment being made within
thirty (30) days of November 1, 2009. LICENSOR hereby
acknowledges receipt of the Annual Minimum Royalty Payment for
the Licensed Year starting November 1, 1998 prior to execution
of this Agreement.
3. Continuing Minimum Annual Royalty Payments of Ninety-five
Thousand Dollars ($95,000.00) payable beginning with the
Licensed Year starting November 1, 2010, as long as at least
one unexpired patent remains on Schedule A.
4. An Earned Royalty of three (3%) percent of LICENSEE'S Net
Receipts from all sales of Licensed Products for each Licensed
Year covered by any Licensed Patent minus any Minimum
Royalties paid during such Licensed Year and also minus
previous Minimum Royalties paid for which no credit was
received in previous years. The Earned Royalty for each
Licensed Year is to be paid within forty-five (45) days after
the end of the Licensed Year.
5. In the event this Agreement is terminated, no portion of the
Minimum Royalty, or of any Continuing Minimum Annual Royalty
for that License Year in which such termination becomes
effective will be refunded to LICENSEE. LICENSEE shall pay to
LICENSOR the above-stated minimum royalties irrespective of
LICENSEE'S ability to accomplish sales of Licensed Products.
Section 5-B The term "Net Receipts", as used herein, means all payments
received by LICENSEE from all sales of Licensed Products; provided, however,
that with respect to Licensed Products which are (a) sold by LICENSEE to any
customer having a special relationship with or enjoying a favored position for
dealing with LICENSEE as a result of which payments received by LICENSEE are
less than the payments received from ordinary customers, (b) sold by LICENSEE
for other than monetary payments, or (c) used rather than sold by LICENSEE, the
term "Net Receipts" means the most recent monetary payments received by LICENSEE
for such Licensed Products and parts therefor from ordinary customers. Net
Receipts must include all payments received for sales commissions and normal
packaging. Net Receipts may exclude separately billed payments for
transportation from LICENSEE'S place of business to the customer's destination,
for replacement of defective Licensed Products under warranty provisions, for
excise and sales taxes, and for extra packaging charges caused by special
customer requests.
8
<PAGE>
Section 5-C Each earned royalty payment due hereunder will be made
during the month following the Licensed Year covered thereby and will be
accompanied by a report showing for such Licensed Year: (a) a list of all
separately identifiable types (i.e., by model numbers or equivalent) of Licensed
Products sold or otherwise utilized, (b) the quantity of such Licensed Products
of each type, (c) the Net Receipts from Licensed Products of each type, (d) the
quantities of, and Gross Receipts for, parts sold or otherwise utilized,
identified by the Licensed Products types for which supplied, and (e) the
derivation of the amount payable to LICENSOR from the foregoing information.
Section 5-D LICENSEE shall pay interest to LICENSOR at a rate of two
percent (2%) over the prime per annum interest rate as set by Comerica Bank on
any and all amounts that are at any time overdue and payable to LICENSOR under
this agreement, such interest being calculated on each such overdue amount from
the date when such amount became due to the date of actual payment thereof. The
payment of such interest shall not replace any of LICENSOR'S other rights under
this agreement resulting from LICENSEE'S default by failure to pay any amounts
due hereunder.
Section 5-E All amounts payable to LICENSOR under this agreement are
to be paid in U.S. Dollars.
Section 5-F LICENSEE shall at all times during the life of this
agreement and for one year after termination accumulate accurate and up-to-date
records which will contain the complete data from which amounts due to LICENSOR
under this agreement can be readily calculated, shall preserve and permit
examination of such records by LICENSOR'S representatives at reasonable
intervals and under reasonable conditions during the life of this agreement and
for three (3) years thereafter, and shall supply to LICENSOR'S representatives
upon request all information useful in making a proper audit and verification of
LICENSEE'S performance of its obligations under this agreement. If an audit
determines that any accounting or royalties paid to LICENSOR is less than 97% of
the royalties due to LICENSOR, then LICENSEE shall bear the entire cost of said
audit and make payments forthwith to LICENSOR of any shortage based on the
actual number of Licensed Products sold.
ARTICLE VI
Duration and Legal Effect
Section 6-A This agreement is effective as of the date established by
Section 7 of this Agreement and, unless sooner terminated under the provisions
below, will continue in effect for the life of the Licensed Patents set forth in
Schedule A hereof, subject to the termination provisions set forth herein.
Section 6-B If either party defaults for any reason in any of its
obligations hereunder, the other party will have the right to terminate this
agreement by giving written notice of termination at least sixty (60) days prior
to the effective date of such termination, such notice specifying the default;
provided, however, that such notice will be of no effect and termination will
not occur if the specified default is remedied prior to said effective date of
termination.
9
<PAGE>
Section 6-C LICENSOR may terminate this agreement forthwith in the
event of the bankruptcy or insolvency of LICENSEE or any part of LICENSEE, an
assignment for the benefit of creditors of LICENSEE or any part of LICENSEE, the
nationalization of the industry which encompasses any of the Licensed Products,
or any suspension of payments hereunder by governmental regulation. Such
termination shall be without prejudice to any other rights or claims LICENSOR
may have against LICENSEE. LICENSOR's ability to terminate this agreement due to
nationalization, or to the suspension of payments hereunder by government
regulations shall be limited to terminating this agreement in the country in
which such event occurs.
Section 6-D During the period of one year after termination of this
agreement, LICENSEE may, subject to its earned royalty payment and reporting
obligations set forth above, dispose of Licensed Products, and parts therefor,
which it has on hand prior to termination.
Section 6-E This agreement may not be assigned or otherwise transferred
by LICENSEE to anyone without the prior written consent of LICENSOR.
Notwithstanding the aforesaid, LICENSEE may upon LICENSOR'S written consent
assign this agreement to a successor of LICENSEE of all of the business of
LICENSEE providing such successor agrees in writing to assume all of the
obligations of LICENSEE hereunder. Such consents shall not be unreasonably
withheld. LICENSOR may assign this agreement, subject only to the limitation
that LICENSOR's obligations under Article III and under Article VIII, Section
8-C hereof are personal to LICENSOR, and shall survive any assignment of this
agreement by LICENSOR.
ARTICLE VII
Contingency and Effective Date
This Agreement is contingent upon LICENSEE and Active executing an
agreement relating to the Licensed Products ("Active Agreement") and shall be
effective on the Effective Date of the ACTIVE Agreement.
ARTICLE VIII
Miscellaneous Provisions
Section 8-A Failure of either party to insist upon the strict
performance of any provisions hereof or to exercise any right or remedy shall
not be deemed a waiver of any right or remedy with respect to any existing or
subsequent breach or default; the election by either party of any particular
right or remedy shall not be deemed to exclude any other; and all rights and
remedies of either party shall be cumulative.
Section 8-B LICENSEE shall bear all development costs, sales costs and
related expenses in connection with the commercialization of Licensed Products.
LICENSEE shall endeavor in every reasonable and proper way and to the best of
its ability to use its best efforts to further sales of Licensed Products with
the aim of achieving a good exploitation of Licensed Products in the Licensed
Territory.
Section 8-C In the event of any actual or threatened infringement suit
against LICENSEE or its customers which would affect the manufacture, use or
10
<PAGE>
sale of Licensed Products, LICENSEE shall promptly give written notice thereof
to LICENSOR, and LICENSOR will make himself available to testify by deposition
or at trial as well as to provide to LICENSEE free of charge any information in
its possession which LICENSOR believes will assist LICENSEE in defending or
otherwise dealing with such suit. LICENSEE shall vigorously and diligently
defend such suit with appropriate consultation with LICENSOR regarding strategic
issues. LICENSEE shall not have any settlement thereof or other disposition
affecting the validity or ownership of Licensor owned Licensed Patents without
the written consent of LICENSOR.
Section 8-D LICENSOR does not assume any responsibility or make any
warranty with respect to Licensed Products, or parts therefor, manufactured,
sold or used under this agreement, nor does LICENSOR assume any responsibility
for any representations or warranties made by the LICENSEE with respect to
Licensed Products, whether express or implied. LICENSEE shall hold LICENSOR
harmless from any liability arising from Licensed Products, or parts therefor,
manufactured, sold or used under this agreement.
Section 8-E Any notice required or permitted hereunder shall be in
writing and shall be sufficiently given when mailed postpaid first class
registered mail and addressed to the party for whom it is intended at its record
address, and such notice shall be effective as of the date it is deposited in
the mail. The record address of LICENSOR for this purpose is:
Edmond B. Cicotte
Cicotte Consultants, Inc.
11086 Hedgeway
Utica, Michigan 48317
and the record address of LICENSEE is:
Chief Financial Officer
Williams Controls Industries, Inc.
14100 SW 72nd Avenue
Portland, OR 97224
Either party may, at any time, substitute for its previous record address any
other address by giving written notice of the substitution.
Section 8-F The rights and obligations of the parties hereto under this
agreement shall be subject to all applicable laws, orders, regulations,
directions, restrictions and limitations of the Governments having jurisdiction
of the parties hereto. In the event, however, that any such law, order,
regulation, direction, restriction, limitation or construction thereof shall
substantially alter the relationship between the parties under this agreement or
the advantages derived from such relationship, the adversely affected party may
request the other party hereto to modify this agreement, and if, within ninety
(90) days subsequent to the making of such a request, the parties hereto are
unable to agree upon mutually satisfactory modifications hereof, then the
adversely affected party may submit such issue to arbitration under the rules
and regulations of the American Arbitration Association upon appropriate notice
to the other party. Each party shall pay its own arbitration costs, including
attorney fees, and the parties agree to abide by the decision of the
arbitration. Any decision by the arbitrators shall be enforceable in any Court
of competent jurisdiction.
11
<PAGE>
Section 8-G This agreement contains all of the terms and conditions
agreed upon by LICENSOR and LICENSEE regarding the specific subject matter
hereof; and this agreement may be modified only by an instrument in writing
executed by LICENSOR and LICENSEE by its duly authorized officers.
LICENSEES and LICENSOR have caused this agreement to be executed, in
triplicate, by its duly authorized officers and the date and at the places
indicated below.
PROACTIVE ACQUISITION, Inc.
WILLIAMS CONTROLS, INC.
Attest: By:________________________
Name:
Its:_______________________
__________________________________
Title Dated:_____________________
(seal) At:________________________
(City, State and County)
EDMOND B. CICOTTE
Attest: By:________________________
__________________________________
Title Dated:_____________________
(seal) At:________________________
(City, State and County)
12
<PAGE>
SCHEDULE A
Licensed Patents
Patents Entitled: Adjustable Automotive Pedal System
U.S. Patent No. 5,351,573, Issued October 4, 1994
U.S. Patent No. 5,771,752, Issued on June 30, 1998
U.S. Patent No. 5,823,064, Issued October 20, 1998
Australia Patent No. 661725, Issued November 21, 1995
Australia Patent No. 685315, Issued April 30, 1998
Brazil Patent No. 9206597 Granted June 23, 1998
Brazil Patent Application No. 9508605A Published November 25, 1997
Canada Patent Application No. 2,119,237, Published April 15, 1993
Canada Patent Application No. 2,197,760 Published February 22, 1996
Czech Republic Patent No. 283392B6 Issued April 15, 1998
Czech Republic Patent Application No. CZ9700464A3 (PV464197) Published January
14, 1998
European Patent Application No. EP607281A4 (92921592.9) Published July 27, 1994
European Patent Application No. EP776497A4 (95928282.3) Published June 4, 1997
Georgia Patent Application No. 553/01 filed December 30, 1994
Georgia Patent Application No. 1576/01 filed February 6, 1997
Hungary Patent Application No. HUT69854A2 (P9400976) Examined September 28, 1995
Hungary Patent Application No. HUT77426A2 (P9701677) Examined April 28, 1998
Japan Patent Application No. JP6507035T2 (506,976) Published August 4, 1994
Japan Patent Application No. JP10506730T2 (507,403) Published June 30, 1998
Mexico Patent No. 180,663 Issued January 18, 1996
Mexico Patent Application No. 953516, filed August 15, 1995
13
<PAGE>
Poland Patent No. 168510 Published February 29, 1996
Poland Patent Application No. 319789 Published September 1, 1997
Russian Federation Patent Application No. 94045823.0 filed April 6, 1994
Russian Federation Patent Application No. 97103946 filed March 14, 1997
Ukrainian Patent Application No. 94005483 filed April 6, 1994
Ukrainian Patent Application No. 97031162 filed March 14, 1997
14
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement Nos. 333-59397 and 333-90565 on Form S-3 and the Registration
Statement No. 333-56591 on Form S-8 of Williams Controls, Inc. and subsidiaries
of our reports dated December 18, 1997, which appear in this annual report on
Form 10-K for the year ended September 30, 1999.
/s/ Horwath Gelfond Hochstadt Pangburn & Co.
- --------------------------------------------
HORWATH GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 29, 1999
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated December 29, 1999, included in this Form 10-K,
into the Company's previously filed Registration Statement Nos. 333-59397 and
333-90565 on Form S-3 and No. 333-56591 on Form S-8.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Portland, Oregon,
December 29, 1999
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